Monday, October 10, 2011

BSP revises peso forecast for 2011 Inflows seen to strengthen currency

MANILA, Philippines?The Bangko Sentral ng Pilipinas has revised its forecast on the average peso-dollar exchange rate for the year. It now expects a stronger range of 42 to 45 against the US dollar, from the previous range of 45 to 47, as foreign capital inflows are expected to remain robust.

BSP Deputy Governor Diwa Guinigundo said that, in making its latest peso-dollar projection for 2011, the regulator took into account the latest financial developments that tend to influence the exchange rate, including dollar inflows.

In 2010, the peso averaged at 45.12 against the dollar. Toward the end of the year, it strengthened, closing at 43.84.

Foreign exchange traders and economists said last year?s appreciation of the peso was partly driven by the surge in foreign portfolio investments.

In 2009, the peso averaged at 47.63 against the greenback.

Foreigners have been buying up local stocks and other securities, pushing up the stock market and pulling down interest rates on government securities to record levels. According to analysts, foreign investors looking for short-term gains prefer to park their funds in emerging markets like the Philippines, given the encouraging growth rates and favorable economic prospects of the region.

According to an earlier report from the central bank, net inflow of foreign portfolio investments rose to $4.6 billion in 2010?nearly 12 times more than the $388 million registered the previous year.

Latest data from the BSP showed that foreign portfolio investments would continue to be strong through 2011. In the first two weeks of January, net inflows amounted to $276.14 million?up 87 percent from the $147.68 million seen in the same period last year.

Guinigundo said that, apart from foreign portfolio investments, other factors that had served to strengthen the peso were remittances, investments in the country?s business process outsourcing sector, and improving export income.
He said the peso-dollar rate of 42 to 45 was used by the BSP in making the inflation forecast for this year and 2012.

The exchange rate influences inflation through imports. A stronger peso makes imported goods cheaper in local currency terms, thereby pulling down overall domestic prices.

The BSP changed its inflation forecasts for this year and the next. For 2011, the BSP expects inflation to reach 4.4 percent, faster than the previous estimate of 3.6 percent. For next year, inflation is seen to settle at 3.5 percent from the previous 3 percent.

For this year and the next, the government hopes to limit the rate of rise in consumer prices to within a range of 3 to 5 percent.

By Michelle Remo
Philippine Daily Inquirer
First Posted 02/11/2011
Philippine Peso Exchange Rate

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