OFWs Dollars

Peso seen staying within 44:$1 territory this year
By Michelle RemoPhilippine Daily InquirerFirst Posted 21:04:00 04/13/2010
BARCLAYS IS BULLISH ON THE Philippine peso, saying the currency is likely to stay within the 44:$1 territory over the next 12 months on the back of rising remittances and export revenues.
“[Foreign currency] inflows will continue to support the balance of payments and create a supportive backdrop for the peso,” Barclays said in its latest commentary on the Philippine economy.
The National Statistics Office on Tuesday reported that Philippine exports surged 42.3 percent to $3.57 billion in February.
Remittances, on the other hand, reached $1.4 billion in January, up 8.5 percent year-on-year.
Analysts said the surge in inflows of foreign currencies was causing the appreciation of the peso. Earlier this month, the local currency moved past the 44-to-a-dollar territory and hit a 20-month high. Traders said the peso was moving consistently with other Asian currencies with the improved appetite among investors on Asia, which is predicted to drive this year’s global growth.
The appreciation of the peso is one of the reasons why the inflation outlook for the Philippines has remained positive. The Bangko Sentral ng Pilipinas expects consumer prices to grow 4.7 percent this year, well within the target of 3.5 to 5.5 percent.
Barclays, however, said that while a strong peso had positive effects, some sectors—exporters in particular—were expected to complain about the currency’s appreciation.
“Some segments of relatively labor-intensive manufacturing exports, including toy makers, are demanding currency market intervention and State aid as they are facing stiff competition in the international markets, and the strength of the peso is not helping,” the investment bank said.
Exporters have complained about the peso’s appreciation because it made their goods more expensive in dollar terms and, therefore, less competitive.
But the Bangko Sentral ng Pilipinas has reiterated its stand against having a bias in favor of a weak currency and showing such by intervening in the foreign exchange market.
According to central bank officials, the BSP maintains a policy of allowing a market-determined exchange rate but intervenes from time to time only to avoid sharp fluctuations in the exchange rate.

Barclays said: “We believe the central bank will continue to finely balance the need for a stronger currency to keep a lid on imported inflation and dampening impact of a stronger currency on remittances in local currency terms [and by extension, on consumption spending].”
Some economists said the appreciation of the peso had a dampening effect on consumption because it reduces the peso value of the same dollar amount of remittances.