Peso seen to further strengthen vs dollar

Powered by the steady inflow of foreign exchange from remittances and investments, the peso is expected to pick up even more strength in 2008 and hit levels above 40 to a dollar, possibly around 38 to 39 to $1.

According to JP Morgan economist Sin Beng Ong, the peso could potentially go higher than 40 to $1 in 2008 as a result of the resilient and sustained strength of the country’s large current account surplus.

At the Philippine Dealing System, the peso gained  another 31 centavos yesterday to settle at 43.190 from Friday’s close of 43.50 to the dollar. Total transaction amounted to $446 million on an average rate of 43.278 to $1.

The Bangko Sentral ng Pilipinas (BSP) expects the country’s balance of payments (BOP) surplus to hit as high as $9 billion this year.

According to Ong, foreign exchange inflows would come largely from portfolio investments and remittances from overseas Filipinos in 2008 despite the expected slowdown in the US economy.

“For as long as the external economy is buoyant, the demand for Philippine labor will be strong,” Ong said. “Remittances will continue to fuel consumption unless there is a massive shock such as cycles of recession and this is not something we expect to see.”

The strength of the peso, however, is beginning to be a thorn in the side for economic planners and monetary officials who have been reluctant to say that the appreciation of the peso is potentially damaging.

Monetary officials said the strength of the peso had been neutral because the currencies in the country’s closest competitors in the export market are also appreciating.

According to the BSP, however, the strong foreign exchange inflows are beginning to cause stress on the Philippine economy that would require immediate intervention.