Tuesday, 26 May 2009

Peso heading to P46-to-$1 territory

‘Hot money,’ remittances boost local currency

By Michelle Remo
Philippine Daily Inquirer

MANILA, Philippines—The peso strengthened on Monday to the 46-to-a-dollar territory as lingering concerns over the US economy led some people to dump the greenback in favor of emerging-market currencies.

The peso opened at P46.95 to a dollar Monday and reached an intra-day high of P46.91. The last time the peso traded in the P46 level was last February.

While the peso slipped to the P47 level and closed at P47.17 against the dollar by the end of trading, or 13 centavos weaker than Friday’s close of P47.04, traders and analysts expect the local currency to gain against the greenback in the coming weeks.

BSP Governor Amando Tetangco Jr. said the movement of the peso yesterday was in line with that of other currencies in the region.

“I understand the won triggered the [regional] downtrend as geopolitical concerns related to North Korea’s nuclear testing hit the market,” Tetangco said.

Volume of trade at the Philippine Dealing System yesterday amounted to $772.28 million, up from the Friday’s $546.48 million.

But Rafael Algarra, senior vice president and treasurer at Security Bank, said the dollar was generally perceived to be weak.

“The dollar has been weakening because of speculation that the jobless data in the United States would continue to worsen. Economic recovery is not as fast as expected, and so the US government is likely to engage in huge borrowings to pump-prime the economy,” Algarra told the Inquirer.

Algarra said the peso ended the trading day at the P47 level due to projections that the Philippine government would breach its budget-deficit ceiling for the year of P200 billion because of anemic tax collection and heightened need for spending.

“But overall, the trend remains the same—there will be continued dollar weakness in the meantime,” Algarra said.

Meanwhile, Jonathan Ravelas of Banco de Oro said the strengthening of the peso to the 46 level during the first half of yesterday’s trading day was also partly a doing of robust inflows of remittances from overseas Filipino workers.

Remittances in May are usually bigger than those sent in other months because of tuition-related spending.

The Bangko Sentral ng Pilipinas said the relative strength of the peso in the past days (going back to the P47 level in the first week of the month after hovering in the P48 level) was an indication of rising inflows of foreign portfolio investments to the Philippines.

The BSP said market appetite for investments in securities from emerging economies has been slowly recovering.

The BSP said foreign-currency inflows in the past week indicated that the country may again post a net inflow of hot money in May after registering net outflow in the previous month.

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