The Philippine peso has a secret weapon

Slowing inflation has ensured real yields on the nation's bonds remain high
Newsfeed04 Nov 2019
Photo credit: AFP Photo

Market news selected by the DBS Chief Investment Office

The Philippine peso has a secret weapon that has made it one of Asia’s best-performing currencies this year: bumper real yields.

While the central bank has cut interest rates three times this year to spur growth – which typically saps demand for a currency – slowing inflation has ensured that real yields on the nation’s bonds have remained among the highest in Asia, drawing in overseas investors.

The country’s annual inflation rate dropped to 0.9% in September from 6.7% a year earlier as rice prices slumped after the government liberalised imports and the cost of alcohol, housing, water, and electricity all declined. The slowing inflation rate has pushed up the real yield on the nation’s 10-year bonds to 3.77%, from as low as 0.33% in November 2018, according to data compiled by Bloomberg.

Inflation is forecast to have cooled even further in October, with a report due Tuesday (5 November) expected to show the level slipped to 0.8% that month, the lowest since April 2016, according to the median estimate of economists surveyed by Bloomberg. That compares with most recent published figures of 3.13% for Indonesia, 3.99% for India, and 1.1% for Malaysia.

The tailwind of high real yields has seen the peso strengthen 3.6% this year and reach 50.715 per dollar, the strongest since January 2018. – Bloomberg News.

The US Dollar Index (DXY) lost 0.12% to 97.239 on Friday (1 November). The euro rose 0.13% to USD1.1166, the pound inched 0.03% higher to USD1.2946, and the yen closed 0.15% lower at USD108.19 per dollar.


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