The peso further appreciated against the US dollar in October, thus posting one of the biggest gains against the greenback among key Asian currencies in the first 10 months.
Market data showed that the peso rose by 6.1 percent against the dollar at the end of the first 10 months, faster than the 4.9 percent registered at the end of September.
The peso closed at 41.18:$1 on the last trading day of October, from 41.70 on the last trading day of September.
Jonathan Ravelas, chief market strategist for Banco de Oro, said the continued appreciation of the peso against the dollar made it one of the strongest among major Asian currencies.
The rise of the peso is attributed partly to the Philippine economy’s growth so far this year—at 6.1 percent in the first semester from a year ago—that helped gain the favorable sentiment of the international financial community.
Citing the country’s growth story amid the prolonged recession in the euro zone, Moody’s Investors Services upgraded its credit rating for the Philippines to just one notch below investment grade.
Ravelas said the peso, which closed at 43.84:$1 on the last trading day of 2011, is expected to stay mostly in the 41-to-a-dollar territory throughout the rest of the year due to the favorable market sentiment on the Philippine economy.
He said, however, that there was a chance that the peso would decline a bit in the coming weeks and months as concerns over the “fiscal cliff” in the United States make foreign exchange markets jittery.
The so-called fiscal cliff refers to the beginning of spending cuts in observance of the debt ceiling and various fiscal reforms provided under the Budget Control Act of 2011.
Some of the reforms include the end of certain tax breaks for businesses and imposition of new taxes related to the health care law of the Obama administration.
Although spending cuts and tax reforms are meant to put the US fiscal house in order, economists said these could take a toll on growth of the US economy, which is still struggling to shake off the debilitating effects of the global economic downturn.
“When there are causes for uncertainty, such as the US fiscal cliff, investors tend to go for the safe haven, and for many of them, the US dollar is still the most liquid currency,” Ravelas told the Inquirer.
He added that the peso was likely to end this year at 41.70 against the US dollar.
Ravelas also said the Bangko Sentral ng Pilipinas may be prompted to implement additional measures to prevent an even sharper rise of the peso should appreciation pressures become more pronounced.
He said the BSP may have to intervene at some point considering the adverse effects of a strong currency on the income of exporters and of households dependent on remittances.
Last October 25, the BSP cut its key policy rates for the fourth time this year by another 25 basis points, bringing those to new record lows of 3.5 percent for overnight borrowing and 5.5 percent for overnight lending.
The cut in the key policy rates, which influence commercial interest rates, is expected to cause a reduction in yields from portfolio instruments.
A decline in yields is seen to temper demand for such assets, and thus ease dollar inflows and slow down the appreciation of the peso.