Peso seen to strengthen till end-2012

The peso is expected to keep its tendency to appreciate in the next three months, but this will be tempered by a further reduction of key policy rates that is expected in December.

First Metro Investment Corp. and the University of Asia and the Pacific said in a joint research, published in the latest issue of Market Call, that the foreign exchange rate could fluctuate through November to January.

FMIC and UA&P see the peso trading at 41.42 to a dollar in November, appreciating slightly to 41.38 in December and further to 41.27 in January.

“The peso will have an appreciation bias, but this will be moderated by a further 25-basis-point rate cut in December,” they said.

So far this year, the Bangko Sentral ng Pilipinas has cut both the overnight borrowing and lending rates by 100 basis points to 3.5 percent and 5.5 percent, respectively.

FMIC and UA&P also said that other measures that the BSP was prepared to put in place to avoid a further erosion of the Philippine economy’s competitiveness would temper the peso’s continued strengthening.

They added that Philippine sovereign securities should remain in favor among foreign investors due to the strong dollar inflows and the Philippines “very high” international reserves, which FMIC and UA&P expect to reach $84.5 billion by year’s end. The amount would be equivalent to 12 months’ worth of the country’s imports of goods and services.

The reserves amount would also be “much higher in relative terms than our Asean (Association of Southeast Asian Nations) and East Asian neighbors, except for China and Taiwan,” they said.

According to the BSP, cash remittances that overseas Filipinos sent through banks reached $15.6 billion in the nine months to September, an increase of 5.5 percent from last year.

The inflow of foreign portfolio investments also reached $14.7 billion in the 10   months to October, with net inflow placed at $2.7 billion.

The country’s gross international reserves reached $82.1 billion as of the end of October 2012, rising by about $100 million from the previous month’s level.

Earlier this month, the government raised P30.8 billion or $750 million in 10-year peso-denominated global bonds. The proceeds were meant specifically to help buy back as much as $1.5 billion in outstanding Philippine bonds denominated in US dollar and euro. The Bureau of the Treasury plans to issue $500 million in 10.5-year bonds to domestic investors in an auction later this month.