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Philippine Peso Falls on SDA Rate-Cut Speculation; Stocks Rally

April 22 (Bloomberg) -- The Philippine peso fell, halting a three-day advance, while government bonds and stocks rallied on speculation the central bank will lower the interest rate on its special deposit accounts for a third time this year.

Bangko Sentral ng Pilipinas, which meets April 25 to review policy, reduced the rate it pays on 1.9 trillion pesos ($46 billion) in its special accounts by about half a percentage point each in January and March. The central bank isn’t ruling out a further cut in the so-called SDA rate and is “always thinking of additional measures” to manage liquidity, Felipe Medalla, a member of the authority’s Monetary Board, said on April 18. The Philippine Stock Exchange Index rose above 7,000 for the first time, posting its biggest gain in almost a month.

“The consensus is for the BSP to cut the SDA rate by another 50 basis points at this week’s meeting to bring down its cost,” said Ricky Cebrero, head of Treasury at Philippine National Bank in Manila. The rate cuts may be encouraging funds to shift to the bond and equities markets, he said.

The peso declined 0.4 percent to 41.215 per dollar at the close in Manila, according to Tullett Prebon Plc. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, fell four basis points to 4.68 percent.

The yield on the 3.875 percent bonds due November 2019 fell 11 basis points, or 0.11 percentage point, to 2.70 percent, according to Tradition Financial Services. The rate is at the lowest since the notes were first sold in November.

Ready to Intervene

Bangko Sentral is always ready to intervene to keep the foreign-exchange market orderly, Assistant Governor Cyd Amador told reporters on April 19. The monetary authority may deploy prudential measures more actively to augment traditional monetary policy and prevent asset bubbles from forming, Deputy Governor Nestor Espenilla said separately on April 19.

The central bank announced on April 18 that it’s doubling the amount of dollars residents can freely buy and broadened the range of approved outward investments to spur capital outflows and slow the peso’s gains.

The BSP will keep its benchmark overnight borrowing rate unchanged at 3.5 percent, according to all economists in a Bloomberg News survey.

The main stock index rose 2.4 percent to close at 7,120.48. Ayala Corp., owner of the nation’s biggest builder and JG Summit Holdings Inc. which has investments in airlines, property and food, both climbed to the highest levels on record.

Airport Bid

Ayala rose 5.4 percent, the most since May 2012, after the government reported that it formed a group with Aboitiz Equity Ventures Inc. and ADC & HAS to bid for the upgrade of Cebu international airport in central Philippines.

Aboitiz climbed 6.4 percent, its steepest advance since October 2011 as San Miguel Corp., another potential bidder, rose 2.5 percent to its highest level since November 2011. JG Summit, which partnered with Metro Pacific Investments Corp. for the Cebu airport project, added 6.5 percent to an all-time high. Metro Pacific rose 1.6 percent to the highest in more than three-and-a-half years.

To contact the reporter on this story: Clarissa Batino in Manila at cbatino@bloomberg.net

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net

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