Philippine Peso Rises From Three-Month Low After BSP Comment

The Philippine peso snapped a three-day drop on speculation the central bank will intervene to maintain stability as a state plan to subsidize power costs threatens to derail budget goals. Most government bonds fell.

Excessive volatility in the exchange rate will be curbed, Bangko Sentral ng Pilipinas Governor Amando Tetangco said in a mobile-phone message yesterday. The peso reached a three-month low yesterday after President Benigno Aquino said on Dec. 9 that the government was considering using royalties from a natural gas project to subsidize power rates for consumers.

“BSP could be in the market to guide the exchange rate whenever you see excessive weakening or strengthening and yesterday’s was one such move,” said Patrick Ella, an economist in Manila at Security Bank Corp. “The subsidy could tip this year’s budget deficit to above the 2 percent target.”

The peso climbed 0.4 percent to 44.132 per dollar in Manila, according to prices from Tullett Prebon Plc. It touched 44.345 yesterday, the weakest since Sept. 9. The currency has depreciated 7 percent this year, set for the worst annual performance since 2008.

One-month implied volatility, a measure of expected moves in the exchange rate used to price options, rose seven basis points, or 0.07 percentage point, to 6.18 percent, increasing for a fourth day.

Budget Deficit

The Energy Regulatory Commission said on Dec. 9 Manila Electric Co. could boost rates in three phases, with the biggest increase scheduled for this month. The utility supplies 5 million customers in the capital and nearby provinces.

The Philippines budget deficit narrowed to 112.5 billion pesos ($2.5 billion) in the first 10 months of the year from 115.6 billion pesos in the same period a year earlier, official data show. The government’s full-year target is 238 billion pesos, or 2 percent of gross domestic product. The deficit reached a record 314 billion pesos in 2010.

The yield on the 3.875 percent bonds due November 2019 rose three basis points to 3.33 percent, Tradition Financial Services prices show. The yield has risen 20 basis points since Dec. 4.

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