Monday, 12 October 2009

Strong peso seen taming inflation

Erik de la Cruz
Business Mirror

THE surging peso may be bad news for Filipinos abroad sending home dollars to their beneficiaries, but it should help tame inflation, which may rise further as consumer-price pressures are expected to build up after two deadly storms in the past three weeks.

This was according to some analysts, who expect the peso to strengthen further against the US dollar after hitting its strongest in nine months last week.

“A surprisingly good peso performance means that the cost of imports, especially oil and food products, can counterbalance any such inflationary pressures,” said Marc Bautista, research head at Metropolitan Bank & Trust Co. (Metrobank).

“Thus, inflation is still expected to be tame for the coming months moving into 2010,” he added.

The peso rallied to 46.45 per dollar on Thursday, a level that was hit again on Friday, and could have established a new high this year had the Bangko Sentral ng Pilipinas (BSP) not intervened to support the dollar, traders said.

The last time the peso hit 46.45—its strongest level so far this year—was on January 7.

“The local currency continued to strengthen, gaining 1.36 percent week-on-week on Friday as the greenback extended its weakness against the major currencies,” said Jonathan Ravales, chief market strategist at Banco de Oro Unibank.

Ravelas said with the expectation that the dollar is to weaken further, “the peso could still strengthen toward the 46 to 46.25 level in the near-term.”

A “minor” correction, however, is also expected given the speed of the appreciation, he said. The peso has gained more than 5 percent since early September, when it hit a low of 49.01.

Data released last week showed inflation picking up to 0.7 percent last month from a 20-year low of 0.1 percent in August. Consumer prices rose an average 3.4 percent in the first three quarters of 2009 from the same period last year, a rate that is well within the government’s full-year forecast of 2.5 percent to 4.5 percent.

The uptick in inflation, however, did not take into account the impact of recent natural calamities that destroyed billions of pesos worth of properties and agricultural products, analysts said.

Bautista said while inflation is expected to further pick up in the last three months of the year, full-year average will still be tame at about 3 percent.

“While the devastation brought about by the recent typhoons may bring price pressure on agricultural products, the full impact may not be seen until next year,” he said.

He expects inflation to average 4.4 percent in 2010, “still hovering on the low side of the inflation numbers for this decade.”

Given that the global economy is expected to grow rather tepidly next year, he does not foresee strong upward pressure on consumer prices.

Bank of the Philippine Islands, in its weekly market outlook, expects the peso to trade between 46.10 and 46.60 this week.

The BSP, however, is again expected to make its presence felt in the market, tempering any excessive peso gains against the dollar, analysts said.

Bangko Sentral plans to moderate peso rise
Clarissa Batino
Manila Standard

THE Bangko Sentral said it would like to see the local currency strengthen at a more gradual pace and flagged the possibility of intervention.

“A more moderate appreciation would allow the markets and players to have more time to adjust,” Deputy Governor Diwa Guinigundo said in an e-mailed reply to questions yesterday. The central bank will “smoothen fluctuations, as we have always been doing, to achieve more orderly movement of the exchange rate,” he said.

The peso was headed for a sixth straight weekly gain, its best winning streak in two years, and yesterday climbed to a nine-month high.

The unit strengthened this month on speculation overseas Filipinos will repatriate more money to help relatives rebuild homes and replace assets following the capital’s worst flooding in at least 40 years. The government estimates storms in the past two weeks caused P12.5 billion of damage.

“The role of the central bank is to stabilize,” said Marcelo Ayes, senior vice president at Rizal Commercial Banking Corp. in Manila. “Too much strength in the peso is not going to help the economic recovery.”

The peso closed yesterday at 46.46 to $1 against 47.64 to $1 on Jan. 5, the first trading day of the year.

The currency would probably trade between 46.45 and 47 for the rest of the year as the central bank intervened, Ayes predicted. Bangko Sentral “guarded” the 46.45 level Thursday by buying dollars, he said.

Peso appreciation has gathered pace of late because of dollar weakness, “big waves” of remittances and surging investment in local assets by overseas investors, Guinigundo said. “The challenge is the magnitude and the pace” of the gains, he said, adding that “fundamentals have improved to a level that would justify a stronger currency.”

The government is sticking to its 0.8-percent to 1.8-percent growth target this year, Economic Planning Director Dennis Arroyo said this week, citing remittances and storm-related spending. Transfers of cash from Filipinos living overseas climbed 9.3 percent from a year earlier in July, the biggest increase this year, official figures show. Bloomberg

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