Friday, 7 May 2010

Peso expected to strengthen to 42:$1

By Michelle Remo
Philippine Daily Inquirer

GOLDMAN SACHS is bullish on the peso, saying the currency may hit as high as 42:$1 within the short term on the back of the sustained rise in overseas Filipino workers’ remittances and inflows from export of information technology services.

In a paper entitled “Philippine: Two Engines of Flows Power the Economy as it Steers Through Elections,” Goldman Sachs said that despite the usual election-related concerns, dollars flowing into the economy would remain robust because of strong demand for Filipino workers by companies offshore, and the steady rise in revenue of the business process outsourcing sector.

The international investment bank said the peso could hit 43.6 within three months and 42.5 to $1 within six months. In the next 12 months, Goldman Sachs said, the peso could hit 42.

“’We expect remittances to remain strong and supportive of growth and the peso. Our long-held view on the drivers of stable remittances remain intact,” it said in the paper.

Goldman Sachs said it expected remittances to the Philippines to rise by 10 percent from $17.3 billion last year. This is higher than the central bank’s projection of a 6-percent remittances growth this year.

It said the likelihood of the central bank raising policy rates starting July would also put upward pressure on the peso.

Goldman Sachs said the Bangko Sentral ng Pilipinas might raise key rates by a total of 75 basis points this year. Currently, policy rates stand at 4 percent and 6 percent for overnight borrowing and lending, respectively.

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