Peso surges to 28-mo high on heavy $ inflow

The peso surged to its strongest finish in over 28 months yesterday, closing at 53.67 to the dollar, on heavy remittances of overseas Filipino workers (OFWs) to their families for the fast-approaching Christmas holidays.

Monetary authorities said the peso could appreciate even further with the continued inflows from OFWs, investments and imports.

The peso has steadily been picking up strength over the last two months, finally hitting a two-year and four-month high during yesterday’s trading at the Philippine Dealing System (PDS).

The peso gained 31.5 centavos agaisnt the dollar yesterday compared to its close of 53.985 to $1.

Bangko Sentral Governor Amando M. Tetangco Jr. told reporters that the peso could go up further especially with the slack in corporate demand for dollars.

"It’s possible for the peso to go up more because we continue to have strong inflows," Tetangco said.

The strengthening of the peso would have a downside on exporters whose dollar earnings would be worth less but Tetangco said the appreciation has been gradual enough to give them time to adjust.

"The important thing to monitor is the movement of the peso takes place in an orderly fashion and volatility is controlled," Tetangco said. "Since the volatility has been minimal and we have not seen sharp movements, this gives the affected sectors time to move with the flow."

Tetangco has already projected that the peso could go up to as high as 53-to-the-dollar in 2006, especially if positive market sentiments are sustained by economic reforms.

He said the peso was packing enough momentum to outdo its performance this year provided that economic reforms are not stalled.

According to Tetangco, the peso could trade between P53:$1 to P55 to $1 in 2006 or P2 better than the BSP’s official projected range for this year of P55 to 57 to a dollar.

"For now, that is what I personally see," Tetangco said. "It can even be better if we outperform our fiscal program like we did this year."

Tetangco said that based on both fundamental and technical factors, there were indications that the peso would be able to sustain its gathering momentum until 2006.

The peso’s sustained improvement, however, hinges on the full implementation of the Expanded Value Added Tax (EVAT) which is scheduled to be increased from 10 percent to 12 percent by February 2006.

Tetangco said the implementation of the second step of the tax reform would significantly improve investor confidence and this has a direct impact on dollar inflows.

"The impact on the peso is not direct but it’s significant and measurable," Tetangco said. "Obviously, additional revenues would improve our fiscal position and showing that kind of commitment to reforms would attract inflows."

The National Government expects to increase its revenue collection by 20 percent in 2006 which would allow it to pare down its deficit to at least P125 billion. By 2008, the government said it would be able to balance the budget for the first time in 10 years.

For the year todate, the NG said it is P40 billion ahead of its programmed deficit and the full-year figure is likely to reach only P140 billion against its ceiling of P180 billion.

"If we can improve on that next year, the peso will strengthen," Tetangco said.

Tetangco said the increase in remittances from overseas Filipino workers (OWFs) would also support the peso since the BSP would have the flexibility to smoothen the volatility in the peso-dollar exchange rate.

The last two months of the year are traditionally the strongest months for OFW remittances because of the Christmas holidays.

For the whole year, the BSP said OFW remittances would grow by 28 percent, way above the original projection of 10 percent growth rate.

BSP deputy governor Diwa Guinigundo said the increase in OFW remittances was due both to the increase in the deployment of Filipino workers abroad as well as the shift to higher-paying jobs that generated more dollars.