Philippine Peso Gains Most in a Week as CPI Fuels Rate-Rise Bets

The Philippine peso strengthened by the most in a week after a report showing an acceleration in inflation added to speculation the central bank will raise interest rates.

HSBC Holdings Plc and Barclays Plc forecast Bangko Sentral ng Pilipinas will increase the benchmark policy rate at its June 19 meeting after data yesterday showed the gain in the consumer price index in May was the fastest since 2011. Asian currencies climbed today on optimism monetary easing in Europe will spur demand for higher-yielding emerging-market assets.

“The stronger-than-expected CPI data helped push the peso higher on the view that rate hikes may be coming,” said Jonathan Cavenagh, a Singapore-based foreign-exchange strategist at Westpac Banking Corp. The central bank may allow more currency strength, he said.

The peso appreciated 0.4 percent to 43.650 per dollar in Manila and was up 0.2 percent for the week, prices from Tullett Prebon Plc show. It gained 1.6 percent over the past month, the best performance in Asia.

Consumer prices rose 4.5 percent from a year earlier, official data showed yesterday. That exceeded April’s 4.1 percent increase and the 4.2 percent median estimate in a Bloomberg News survey. The central bank’s overnight borrowing rate is a record-low 3.5 percent.

Bonds Fall

The European Central Bank lowered its deposit rate yesterday to minus 0.1 percent, becoming the first major central bank to take one of its main rates negative.

Bangko Sentral ng Pilipinas will consider the ECB’s move at the June 19 policy meeting, Governor Amando Tetangco said in a mobile-phone message last night.

One-month implied volatility in the peso, a measure of expected moves in the exchange rate used to price options, climbed 38 basis points, or 0.38 percentage point, this week to 4.9 percent. The gauge fell 12 basis points today.

The yield on the benchmark 2.875 percent government bonds due May 2017 increased five basis points this week to 2.91 percent, according to a fixing from Philippine Dealing & Exchange Corp.

The nation’s 10-year notes offer a yield of 4.09 percent, compared with 1.3 percent on German bunds and 1.7 percent on French notes, data compiled by Bloomberg shows.

“The room to keep main policy rates on hold has narrowed,” HSBC analysts in Hong Kong including Trinh Nguyen and Dominic Bunning wrote in a report yesterday. “The rise in onshore bond market yields suggests the market is getting prepared for more liquidity tightening or potential rate hikes.”

The lender predicts the central bank will raise the benchmark overnight borrowing rate and special-deposit account rate by 25 basis points each this month as well as increase banks’ reserve requirements for the third time this year.

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