Peso rallies to 42.89 to dollar

MANILA, Philippines - The peso strengthened yesterday to its strongest level in almost two months after breaching the 42 to $1 level on the back of the country’s strong macroeconomic fundamentals.

The peso gained 16.50 centavos to close at 42.89 to $1 from Tuesday’s close of 43.055 to $1. The local currency hit an intra-day high of P42.83 to $1 as volume was heavy at $1.102 billion from the other day’s $754.59 million.

This was the highest level for the peso since closing at 42.88 to $1 last May 11.

Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco Jr. said the value of the peso continued to strengthen against the dollar due to the country’s sound macroeconomic fundamentals and robust external payments position.

“The fundmantal factors that influenced the exchange rate are still positive for the peso,” Tetangco told reporters on the sidelines of the 2011 Awards Ceremony and Appreciation Lunch for Stakeholders as part of the central bank’s 18th anniversary celebrations.

Authorities believe that the country’s gross domestic product (GDP) growth would pick up in the second half of the year in light of a sustained private consumption and strong rebound in government spending.

“The prospects for continued economic growth are also still positive so favorable for the peso,” he added.

The Cabinet-level Development Budget Coordination Committee (DBCC) has set a GDP growth target of between seven percent and eight percent this year and next year. The Philippines posted its strongest growth in 34 years after its GDP expanded by 7.6 percent last year from 1.1 percent in 2009.

On the other hand, the BSP chief said the country’s balance of payments (BOP) position _ the difference of foreign exchange inflows and outflows on a particular period and represents the country’s transactions with the rest of the world - continued to post a surplus.

“The BOP remains in surplus so you have more dollars coming in than more dollars going out,” Tetangco explained.

S&P raised the credit rating of the Philippines to two notches below investment grade from three notches last November 12 followed by Moodys last June 15.

Last June 23, the Philippines received another credit rating upgrade under the Aquino administration, this time from London-based Fitch Ratings that upgraded the sovereign rating to one notch from two notches below investment grade on the back of the country’s strong economic growth, improving fiscal position as well as robust external payments position.

With the upgrade, Fitch rates the country’s sovereign credit at one notch below investment grade while Moody’s as well as S&P rate the country’s sovereign credit at two notches below investment grade with a stable outlook.

The BSP chief said the value of the peso against the US dollar would depend on how the debt crisis in Europe and the economic uncertainties in advanced economies are resolved.