Former central bank governor Jose Cuisia Jr. expects the peso to firm up at 38.50-39.00 to the dollar by yearend on sustained foreign exchange inflows from overseas Filipinos, foreign portfolio investors, and investors in business process outsourcing.

?There are positives and negatives but I think the positives will outweigh the negatives such that the peso will continue to strengthen,? said Cuisia, president of the country?s biggest insurer, Philippine American Life and General Insurance Co.

He said the most optimistic forecast he had seen so far was 37.50 to the dollar by yearend but added this was ?probably very aggressive.?

?I think it?s possible that the peso will end at 39 to 38.50 at the end of 2008? Cuisia said. ?I?m confident that for 2008, we?ll see a further strengthening of the peso and exporters will have to factor that in their pricing.?

He said it was unfortunate that the strong peso was also hurting overseas Filipino workers by reducing the peso equivalent of their earnings.

The peso will likely falter when demand for imports rises starting in the second quarter as traders and manufacturers build up inventories for the third and fourth quarters, Cuisia said.

He said high crude oil prices would also temper the peso?s rise, and earnings from exports would likely be reduced with the looming slowdown in the US economy.

The peso, which had rallied for three straight days after a surprise 75-basis-point cut in interest rates by the US Federal Reserve last week, it pulled back on Monday alongside a regional currency market weakened by renewed concerns on the US economy.

The peso closed at 40.95 to the dollar Monday, down 0.15 from Friday?s finish of 40.80.

The volume of trading on the foreign exchange market thinned to $570.57 million from Friday?s $815.5 million.

Cuisia said foreign exchange remittances from overseas Filipino workers (OFWs) would still likely remain strong, citing the central bank?s forecast for the year.

The central bank expects OFWs? remittances through banks to rise by another 10 percent in 2008, to $15.7 billion.

Including money sent through non-bank channels, total OFW remittance inflows are seen to reach $16.2 billion, up eight percent from an estimated $15.0 billion in 2007.

Cuisia said foreign portfolio investments -- in stocks and bonds -- would support the peso.

?The Philippine market is still one of the better performing markets in Asia,? he said. ?If that continues, portfolio investments will come in as investors look at where they can get better yields.?

Cuisia also cited rising foreign exchange earnings of the booming business process outsourcing (BPO) sector, with the annual windfall estimated at $3 billion. ?That has also contributed to the strengthening of the peso and that?s expected to continue growing,? he said.

He said US-based AIG, the parent company of Philam Life, was itself expanding its BPO business in the Philippines and would soon inaugurate its second BPO operation in Manila?s Alabang suburb.

He said the Philippine central bank would likely continue taking its cue from the US Fed?s interest rate cuts to curb the peso?s rise. Edited by INQUIRER.net