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Peso expected to stay at 41:$1 level in 1st half

The peso is expected to stay in the 41-to-a-dollar territory throughout the first semester as the government tries to curb the currency’s appreciation resulting from robust foreign exchange inflows.

In the April issue of “The Market Call,” a joint publication of First Metro Investment Corp. and University of Asia and the Pacific (UA&P), the peso is projected to average at 41.08 against the US dollar in May and may weaken to 41.46 in June.

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Earlier this year, the peso stood at the 40-to-a-dollar level but fell to the 41 territory in April as the Bangko Sentral ng Pilipinas and the Department of Finance initiated measures to temper the effects of foreign exchange inflows.

In particular, the BSP has cut the interest rate on special deposit accounts (SDAs) by a total of 150 basis points since the start of the year, bringing it to a record low of 2 percent.

Investors consider SDAs to be highly attractive investment instruments. Monetary officials believe that foreign funds are being invested in SDAs even though the deposit facility caters only to domestic fund owners.

Also, the Finance department announced that it had abandoned its foreign and commercial borrowing plan for the year.

In settling the government’s maturing obligations denominated in foreign currencies, the government will simply borrow from the domestic market and use the proceeds to buy dollars from the BSP, the DOF said.

The move is expected to temper the peso’s appreciation, resulting from the inflow of foreign exchange.

Also, efforts of the government to boost its infrastructure development program are expected to increase demand for imported materials, according to the Market Call report. Higher imports, in turn, will fuel demand for dollars and dampen the peso’s rise.

“The planned infrastructure development will incur dollar demand and help soften the peso,” The Market Call report said.

Moves to counter the peso’s appreciation came about after the currency rose significantly in 2012, becoming one of the fastest-rising currencies against the US dollar. The peso rose by nearly 7 percent in 2012. At the close of the year, it hit 41.05 against the greenback.

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TAGS: currencies, forecasts, Peso, Philippines
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