Philippine Peso Falls, Bonds Gain as SDA Rate Cut Seen This Week

The Philippine peso fell for a second day and 10-year bonds rose on speculation the central bank will cut the interest rate it pays on its special-deposit accounts for this week.

Bangko Sentral ng Pilipinas will lower the SDA rate to 2 percent from 2.5 percent at its April 25 meeting, after two reductions earlier in the year, according to 12 of 19 economists surveyed by Bloomberg. Two predicted a cut to 2.25 percent, one envisaged no change and the rest didn’t respond. All 19 forecast that the benchmark overnight borrowing rate will be left at 3.5 percent. Consumer prices rose 3.2 percent in March, compared with 3.4 percent in February, official data show.

“The market is expecting a cut in the SDA rate on Thursday, given the still manageable inflation,” said Malou Liwag, a senior vice president at Philippine National Bank in Manila.

The peso declined 0.3 percent to close at 41.338 per dollar in Manila, according to Tullett Prebon Plc. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, rose 16 basis points to 4.83 percent.

The yield on the 4 percent bonds due December 2022 fell 10 basis points, or 0.10 percentage point, to 2.80 percent, according to Tradition Financial Services. That is the lowest rate since the notes were first sold in December.

Bangko Sentral 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 central bank’s Monetary Board, said on April 18.

Outflow Measures

The monetary authority cut the SDA rate in January and March by about half a percentage point each time, while holding its benchmark measure at a record low, as it shifts to an interest-rate corridor approach that Governor Amando Tetangco has said will create greater policy flexibility.

The central bank announced on April 18 that it is doubling the amount of dollars residents can freely buy and broadening the range of approved outward investments to spur capital outflows and slow gains in the peso, which rallied 3.1 percent against the dollar in the past 12 months.

The Bureau of the Treasury sold 30 billion pesos ($726 million) of 1.625 percent bonds due 2016, the first sale of three-year bonds in three years. Bids totaled 76.45 billion pesos, more than twice the amount offered.

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