Philippine Peso Near Two-Month High on Remittances; Bonds Fall

By Karl Lester M. Yap

April 16 (Bloomberg) -- The Philippine peso climbed to the highest level in two months after a report yesterday showed growth in remittances accelerated from a five-year low in February. Government bonds declined.

The peso also gained on speculation economic growth will be stoked by a central bank rate cut. After the close of local currency trading, policy makers reduced borrowing costs by a quarter-percentage point to a 17-year low of 4.5 percent, as predicted by 11 of 12 economists surveyed by Bloomberg News. Exports fell for a fifth month in February, a National Statistics Office report showed today.

“The increase in remittances was unexpected and should cushion pressure on the local currency,” said Lito Biacora, vice president for treasury at Bank of the Philippine Islands in Manila. “Expectations of a 25-basis-point rate cut are also priced in and it should boost economic growth considering inflationary pressures are very limited.”

The local currency advanced 0.2 percent to 47.72 per dollar at the close of trade in Manila, according to Tullett Prebon Plc. It touched 47.61, the highest since Feb. 17.

Inflation has halved from a 16-year high of 12.4 percent reached in August, allowing the central bank to slash interest rates in the past three meetings since December.

Money sent home by Filipinos working abroad as nurses, engineers and housekeepers increased 4.9 percent in February from a year earlier to $1.32 billion, after rising 0.1 percent the previous month, a central bank report showed yesterday. The inflows account for a 10th of the $144 billion economy and are the nation’s largest source of foreign exchange after exports.

Overseas sales plunged 39 percent from a year earlier after dropping 40.6 percent in January.

Bonds Slip

Four-year bonds fell, ending seven days of gains, after the government today said it will increase 2009 domestic debt sales to 463 billion pesos ($9.7 billion) to fund its widening budget deficit. It had earlier planned to borrow 442 billion pesos locally.

The yield on the 12.75 percent bond due March 2013 rose two basis points to 6.19 percent, according to the 11:15 a.m. fixing at Philippine Dealing & Exchange Corp. The price of the note dropped 0.11, or 11 pesos per 10,000 pesos face amount, to 122.63. A basis point is 0.01 percentage point.

The government raised its budget deficit target to 199.2 billion pesos from 177.2 billion pesos estimated in February. It also cut its 2009 economic growth forecast to a range of 3.1 percent to 4.1 percent, from an earlier prediction of 3.7 percent to 4.4 percent.

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