Peso seen falling to 56.45:$1 on political jitters

The peso will likely trade within the range of 55.25 to 56.45 to the dollar this year on political problems hounding the Arroyo administration, foreign exchange dealers said yesterday.

In a press briefing, HSBC treasurer and global markets head Jose Arnulfo Veloso said based on HSBC’s assessment, the peso would hit a high of 55.75 and a low of 56.45 for 2005. Veloso said it is also unlikely for the peso to be traded below the 55.75 to $1 level.

"The political situation is the highlight’’ in the currency market, Veloso told reporters yesterday. "The currency will trade between the all-time low of 56.45 to 55.75 levels. Anything below (55.75) will be a temporary occurrence.’’

The peso has weakened 3.4 percent in the past three months amid allegations Mrs. Arroyo cheated in last year’s elections. The President’s husband, son and brother-in-law were also accused of receiving money from operators of illegal gambling. Mrs. Arroyo has denied all these allegations.

A weak peso will make it more expensive for the government to pay interest on its $34 billion of foreign debt. A declining currency will also raise the peso value of imported goods such as oil, accelerating the nation’s inflation rate.

Crude oil prices for September delivery rose as much as 19 centavos to a near-record $62.08 per barrel in after-hours electronic trading on the New York Mercantile trading. Crude oil futures reached $62.30 yesterday, a record intraday high.

"Aside from political issues, the market should take a look at oil prices in general,’’ Veloso said. Higher oil prices will prompt oil companies to sell pesos for dollars, weakening the local currency.

Crude oil prices may rise to $70 a barrel this year on expectations demand will gain faster than supply, Iran’s Deputy Oil Minister Hadi Nejad-Hosseinian said yesterday.

Opposition lawmakers in the House of Representatives on July 25 filed an impeachment complaint against President Arroyo. The House earlier this week approved the impeachment rules, paving the way for its justice committee to start hearings.

"So long as the situation on the political side is still an unknown element, the peso will trade at 55.25 to 56.40,’’ said Toto Hilado, treasurer at Banco de Oro.

The central bank probably won’t allow the peso to fall beyond 56.45, the peso’s all-time intraday low recorded March 22, 2004, Veloso and Hilado said. The bank may increase reserves on deposits to help boost the currency, they said.

The central bank last month increased the amount of deposits that commercial lenders must set aside as reserves to 21 percent

from 19 percent, removing P32 billion that lenders can use to speculate against the local currency.