Peso may strengthen to 42:$1 by yearend

First Metro Investments Corp. (FMIC) said that the peso could hit an average of 42 against the US dollar this year, explaining that the recent drop in global oil prices would reduce the country’s demand for dollars.

FMIC said that in its latest projection, the peso could average between 42 and 44 against the greenback, stronger than the original forecast of 43 to 45.

In revising the peso forecast for 2012, First Metro Investments took into account the possibility that the country would spend less on imports than earlier expected due to the decline in the cost of oil prices in the world market, FMIC president Roberto Juanchito Dispo said.

The Philippines imports over 90 percent of its oil requirements.

FMIC now expects the country’s import spending to grow by 5 percent this year from a year ago, slower than its original forecast of 10 percent, Dispo said.

With the cut in import spending, the country’s dollar demand may be further reduced, he added.

Recent data showed that the price of Brent oil has fallen below the $100-a-barrel threshold this month, Dispo said. Its price settled at $97.17 a barrel on June 14, down from $120.65 a barrel by the end of March.

An earlier report from the National Statistics Office also showed that the country’s imports amounted to $15.5 billion in the first quarter of the year—down by 1.5 percent from the $15.7 billion posted in the same period last year.

FMIC also took into account the projection that the inflow of foreign portfolio investments would rebound in the second half, Dispo said.

So far this year, net inflow of foreign portfolio investments contracted due to global risk aversion resulting from the prolonged debt turmoil in the eurozone.

The Bangko Sentral ng Pilipinas earlier reported that the net inflow of foreign portfolio investments reached $772.4 million in the first four months, down by 53 percent from the $1.65 billion seen in the same period a year ago.

“Eventually, investors will have to search for yields, and they will naturally go for assets from countries with better-performing economies,” Dispo said.

The peso this month strengthened back to the 42-to-a-dollar territory following reports that the Philippine economy, measured in terms of gross domestic product, grew by 6.4 percent in the first quarter. This was the second-fastest rate in Asia after China’s 8.1 percent.