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Philippine Peso Weakens for Third Day as Deposit Rate Cut Seen

The Philippine peso fell for a third day on speculation the central bank will again cut the interest rate on its special-deposit accounts to help curb capital inflows.

“If there is room to reduce the rate further, then we will do that,” Bangko Sentral ng Pilipinas Governor Amando Tentangco said yesterday in an interview in Bandar Seri Begawan, Brunei. The monetary authority has cut the rate twice this year to 2.5 percent, while holding its benchmark interest rate at a record-low 3.5 percent to damp gains in the peso.

The Philippine currency depreciated 0.1 percent to 40.905 per dollar as of 4:21 p.m. in Manila, Tullett Prebon Plc prices showed. It touched 40.960 earlier, the weakest level since March 27. The currency has risen 4.4 percent against the dollar in the past 12 months, according to data compiled by Bloomberg,

“A further rate cut would reduce the attractiveness of the peso,” said Suresh Kumar Ramanathan, a currency strategist at CIMB Investment Bank Bhd. in Kuala Lumpur, referring to the special-deposit accounts. “We expect the Philippine peso to weaken to 42 against the dollar in the near term.”

One-month implied volatility in the peso, a gauge of expected moves in the exchange rate used to price options, rose three basis points, or 0.03 percentage point, to 3.84 percent.

The yield on the government’s 6.125 percent bonds due 2037 climbed eight basis points to 3.79 percent, according to Tradition Financial Services.

The Philippine budget deficit narrowed to 11.75 billion pesos ($287 million) in February from 19.5 billion pesos in the previous month, according to an e-mailed statement from the finance department today.

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