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By Maricel E. Burgonio, Reporter
THE peso will recover in the fourth quarter of
the year, the Bangko Sentral ng Pilipinas (BSP) said after the local
currency slipped to the 44-to-a-dollar level last week on higher
inflation.
“The peso continues to have support from
favorable external payments position. [It] has fundamental support
to BOP but it’s also being affected by other factors such as risk
aversion because of what is happening in the US, which is affecting
emerging markets including the Philippines,” BSP Governor Amando
M. Tetangco Jr. said.
He said the expected improvement of the peso in
the fourth quarter will help sustain the country’s balance of
payments (BOP) surplus this year. The BOP records the country’s
economic transactions with the rest of the world, with a surplus
indicating that it is earning more dollars than giving up in terms
of its external trade, income transfers, and net financing activity.
Tetangco said the BSP is reviewing its BOP
projection this year. The central bank had forecast a surplus of
$3.4 billion for this year.
Tetangco said the BSP is considering the effect
of risk aversion, which is now affecting emerging markets in terms
of the pullout of foreign portfolio investments, which is money
placed in financial assets like stocks and bonds.
The Development and Budget Coordinating
Committee (DBCC) has set a peso forecast of 42 to 45 against the
dollar this year.
“Analysts see [the] peso recover[ing] in the
fourth quarter of the year,“ Tetangco said.
The local currency breached the 44-to-a-dollar
level last week as inflation accelerated to a 9 year high of 9.6
percent in May. The peso closed at 44.135 against the greenback last
Friday, improving from 44.25 the previous day, after the BSP raised
its interest rates by 25 basis points. Traders expect the local
currency to trade between 44 and 44.50 this week.
Last Thursday, the policy-making Monetary Board
hiked its key policy rates by 25 basis points to prevent inflation
from rising further.
With the rate increase, the BSP raised its
inflation forecast to between 7 percent and 9 percent this year and
to 4 percent and 6 percent next year.
Tetangco earlier said that the increase in oil
prices is expected to be moderate in the second half of the year
even as food prices have stabilized. Over the weekend, the BSP
governor said inflation could reach 11 percent this month before
dropping in July.
In a research note, Development Bank of
Singapore (DBS) said higher oil prices are expected to affect the
Philippine government’s fiscal position and current account
surpluses.
DBS said oil prices have become high enough for
more Asian countries to reform fuel subsidies.
“For countries like the Philippines, this
threatens to reverse the improvements in fiscal finances and current
account surpluses responsible for driving the peso strongerfrom 2005
to 2007,” the Singaporean lender said.
“This will not be an easy week to manage
currency risks in Asia. A lot is riding on where oil prices are
headed. On the one hand, the market has linked a weaker [dollar] to
higher oil prices, and vice versa,” it added.
The government is targeting a fiscal deficit of
P75 billion this year as it plans to raise expenditures in social
services and infrastructure development to counteract a slowing
export sector and cushion Filipinos from higher-than-expected
inflation
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