Author Topic: Peso seen at 42:$1 by 2008  (Read 780 times)

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Peso seen at 42:$1 by 2008
« on: October 03, 2007, 04:14:08 AM »
The Philippine Star

The peso is expected to strengthen to as high as 42 to $1 next year and 41 to $1 in 2009 due to the weakening of the dollar combined with the continued strong inflow of dollar into the economy.

The Bangko Sentral ng Pilipinas (BSP) has been trying to ease the volatility of the peso but banks said monetary officials could go only as far as keeping the peso from appreciating sharply against the dollar.

HSBC Asia-Pacific economist Frederic Neumann told reporters Tuesday that the strength of the peso merely reflected the structural weakening of the dollar, a factor that the BSP would not have the capacity or the inclination to counter.

“The rise of the peso is reflective of the structural weakening of the dollar and the BSP can not go against the pressure of a weakening dollar,” he said.

At Tuesday’s trading at the Philippine Dealing System (PDS), the peso weakened by 6.50 centavos to settle at 44.915 from Monday’s close of 44.850 to$1. Total volume amounted to $476.37 million on an average rate of 44.834 to $1.

According to Neumann, the peso has actually performed well against all other currencies in the region which are also appreciating against the dollar.

“The BSP is stepping in occasionally but we think the peso will continue to appreciate because the BSP’s ability to buy dollars is limited,” Neumann said.

Neumann pointed out that every time the BSP would buy dollars from the market, it is putting more pesos into the system which it would then siphon off using its monetary tools.

“This is very costly and we cant expect the BSP to intervene indefinitely,” he said. “We think the BSP will be happy to let the peso rise as long as it’s not so volatile.”

According to Neumann, the strong peso has actually buffered the economy from high import prices. “So we think it will be a gradual appreciation,” he said.

Neumann expects the peso to average at 44 to the dollar this year and by next year, the currency would appreciate further to an average of 42 to $1 before climbing to 41 to $1 in 2009.

According to Neumann, the strength of the peso would contribute more to the economy and although it was hurting certain sectors, the economy as a whole would benefit from its shielding effects.

“I think the peso appreciation is not as big an issue as exporters are making it out to be,” he said. “Remember that this economy is consumption-driven and not export-driven.”

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