Standard Chartered forecasts P49-to-$1 by yearend

UK-based Standard Chartered Bank expects the peso to strengthen to 49 to a dollar by yearend as it also dispelled fears a stronger peso will have a negative effect on the local economy.

"We remain positive on the Philippine peso given the economy’s strong external position," the bank added.

"While the government has expressed concern about a strong peso’s adverse impact on exports, it remains a useful tool in containing inflation," the bank added.

Frances Cheung, an economist from Standard Chartered’s Global Research Desk said they expect the peso to hit 49 against the greenback by yearend as a result of continued remittance inflows from overseas Filipino workers and foreign direct investment.

Cheung explained that although exports will become less buoyant following the strengthening of the local currency and the decrease in overall global demand, the remittance inflow is enough to keep the economy steady.

She said foreign inflows will strengthen the country’s external position, support growth and allow further fiscal consolidation.

"We forecast the Philippine peso to strengthen against the US dollar to P49 by yearend 2006 and further to P48.50 by the first quarter of 2007," she noted.

Last week, the peso hit a new four-and-a-half year high of 49.69 to $1 on account of higher remittances and foreign investment.

Filipinos working abroad sent home $1.09 billion in August, 12 percent higher from the previous year, the central bank said Remittances account for about a tenth of the domestic economy.

Meanwhile, stock exchange data show that foreign investors bought $199.2 million more of Philippine equities than what they sold in October.

In an earlier statement, President Arroyo said the peso "could still rise," as government revenues increase and the fiscal position improves because of the higher value-added tax.