Philippine Peso, Bonds Rise as Inflation May Slow on Lower Oil

By Karl Lester M. Yap

Aug. 5 (Bloomberg) -- The Philippine peso gained the most in two weeks and government bonds rose on speculation inflation will slow in the next few months due to lower oil prices.

The peso was the best performer of the 10 most-traded currencies in Asia outside Japan as crude oil fell for a second day, extending its decline to more than 18 percent from a record $147.27 a barrel on July 11. Inflation accelerated to the fastest in 16 years in July due to costlier oil and food, a government report showed today.

``A tapering off of inflationary pressures will favor the local currency and fund flows,'' said Lito Biacora, vice president for treasury at Bank of the Philippine Islands in Manila. Inflation may still climb but the ``degree of increase may not be as much if oil stabilizes at $120 a barrel.''

The peso rose 0.7 percent to 44.120 versus the dollar as of 11:55 a.m. in Manila, according to Tullett Prebon Plc. The gain was the biggest since July 23 when it surged 1.3 percent.

Consumer prices climbed 12.2 percent last month from a year earlier, compared with 11.4 percent in the previous month, the National Statistics Office said in Manila.

Crude oil fell 0.9 percent to $120.33 a barrel in after- hours electronic trading on the New York Mercantile Exchange, after dropping 3 percent yesterday. The price touched $119.50 yesterday, a three-month low.

Five-year government bonds gained, pushing the yield to the lowest in more than two months.

The yield on the 9 percent note due July 2013 fell 28 basis points to 8.44 percent as of the 11:15 a.m. fixing at the Philippine Dealing & Exchange Corp. The price rose 1.14, or 114 pesos per 10,000 peso face amount, to 102.24. A basis point is 0.01 percentage point.

To contact the reporter for this story: Karl Lester M. Yap in Manila at kyap5@bloomberg.net.