Peso hits highest level in 3 years

MANILA, Philippines — The peso continued to climb on Tuesday to hit its highest level in over three years, as foreign portfolio investors favor emerging markets like the Philippines amid challenges confronting industrialized economies in the West.

The local currency closed at 42.225 against the US dollar on Tuesday, up by 16.5 centavos from Monday’s finish of 42.39:$1.

Intraday high hit 42.210:$1, while intraday low settled at 42.435:$1. Volume of trade reached $1.103 billion, up from $727.24 million the previous day.

The peso’s close on Tuesday was the highest since May 2008. It closed at 42.17 against the greenback on April 30, 2008.

Economists attributed the peso’s strong performance on the move of foreign portfolio investors to shift their investments into those denominated in emerging Asian currencies, such as the peso, given the favorable growth prospects for Asian economies vis-a-vis their Western counterparts.

BSP Deputy Governor Diwa Guinigundo said in a forum on Tuesday that the surge in foreign portfolio investments into the Philippines and other emerging markets in the region has been expected, given their gap with the industrialized economies in the West.

Besides the faster economic growth rates in Asia, higher interest rates in the region are enticing foreign portfolio investors in this region.

Interest rates in emerging Asia are rising while those in the West, led by the United States, are still at record lows.

This is because monetary officials in Asia need to temper inflation, and  raising interest rates is one way to do it. On the other hand, monetary authorities in the West are confronted with the need to pump-prime the relatively slowly growing economies, and so they have to keep interest rates low.

Consequently, yields of portfolio instruments in Asia are growing, while those in the West remains low.

Guinigundo said the disparity in growth rates and interest rates between emerging Asian markets and Western economies would to continue to push more foreign portfolio funds into the former.

“Advanced economies appear to be moving backward… Any logical direction of investment inflows is toward the more robust and promising emerging markets,” he said in a forum where the latest World Investment Report, by the United Nations Conference on Trade and Development, was launched on Tuesday.

The Philippine economy is expected to grow between 5 and 6 percent in 2011.

Moreover, the Bangko Sentral ng Pilipinas has already raised its key policy rates twice, each by 25 basis points, so far this year.