Peso may strengthen further to 37.50:$1

The Philippine peso is expected to appreciate further and may hit 37.50 against the US dollar within the next 12 months, according to Goldman Sachs, citing the likelihood of a surge in foreign portfolio investments.

Mark Tan, an executive director for the investment bank, said that the Philippines, together with its neighbors, would attract more foreign “hot money” on the back of rising global liquidity and optimism on Asia.

Also, the Bangko Sentral ng Pilipinas is expected to continue buying dollars in the foreign exchange market to avoid a steep appreciation of the peso, Tan said, but its efforts may not be enough to prevent the peso from strengthening beyond the 40-to-a-dollar territory.

“The projection is anchored on the view that net inflow of foreign portfolio investments will remain strong,” Tan said in a briefing Thursday.

Rising global liquidity will support demand for emerging-market securities, including peso-denominated ones, he said.

The peso, along with other Asian currencies, weakened on Thursday against the greenback due to investors’ risk aversion, brought on by uncertainties in the global economy.

The peso on Thursday fell to its weakest level in about six months amid speculations that the US Federal Reserve would soon start tempering its stimulus program due to the improving economic climate in the United States.

The local currency closed at its intraday low of 41.69 against the US dollar, down by 51.5 centavos from the previous day’s finish of 41.175.

Intraday high hit 41.30:$1. Volume of trade amounted to $1.345 billion from $649.7 million of the previous day.

The peso and other emerging market currencies began to depreciate after the minutes of the latest meeting of the US Fed officials was released. Based on the minutes of the meeting, market players believe that the US stimulus program may soon end.

Meantime, the Bangko Sentral ng Pilipians said the development should be viewed positively because an improving US economy would benefit the entire global economy.

“Offhand, an early normalization of monetary policy in the United States should always be a welcome development. It means the outlook on the US economy is improving,” BSP Deputy Governor Diwa Guinigundo said.

He said the BSP is closely monitoring developments and that it is ready to implement policies necessary to ensure that the domestic financial markets would remain stable.

Also, Goldman Sachs believes that the peso will not remain weak for long.

The Bangko Sentral ng Pilipinas earlier reported that net inflow of foreign portfolio investments reached $2.1 billion in the first four months of the year, nearly three times the $766 million seen in the same period of 2012.—Michelle V. Remo