Debt yields steady to lower ahead of inflation data

Reuters

Posted at Feb 02 2009 12:56 PM | Updated as of Feb 02 2009 08:56 PM

Philippine debt yields could stay flat to lower this week ahead of the release of January data on inflation, which is expected to come in at the low end of the central bank's 7-7.9 percent estimate, dealers said on Monday.

Yields were largely steady after the central bank cut policy rates by a half percentage point on Thursday, taking its overnight borrowing rate to 5.0 percent and its lending rate to 7.0 percent.

Some analysts expect further rate cuts in coming months if the latest inflation data showed prices were on a steady decelerating path.

"The market is expecting a 100 basis points drop in inflation to 7 percent in January from 8 percent in December," a trader from a local bank said.

The central bank's forecast would mean inflation is running at a 10-month low and would follow inflation of 8 percent in December, the latest decline in price pressures as commodity prices cool.

The central bank expects inflation to average 3.9 percent this year, down from last year's 9.3 percent, allowing the monetary authority to maintain an easier policy to help spur growth domestically amid recession in the country's main trading partners, the United States and Japan.

Gross domestic product is expected to expand 3.7-4.7 percent this year after rising 4.6 percent in 2008, the government said.

The government also plans to sell P8 billion ($169 million) worth of 7-year bonds at a regular auction on Tuesday, which traders expect to attract an average rate of 6.8 percent, slightly lower than levels in the secondary market.

The 7-year debt was traded at 6.8418 percent in the secondary market, slightly higher than 6.8364 percent on Friday.