Eyes on P50 to the dollar

The peso is likely to test the P50:$1 level this week following last Friday’s lifting of the state of national emergency, seen as further boosting domestic financial markets. "The market is still bullish on the peso. The lifting of the state of national emergency will finally remove any worries the market may have. After regaining all its previous losses, the peso is all poised to climb further against the dollar," said Jonathan L. Ravelas, Banco de Oro market strategist. "Well, as expected the state of national emergency was lifted. The market was anticipating that and any further delays will cause jitters," a currency dealer from a local bank said. President Gloria Macapagal Arroyo on Friday lifted Proclamation 1017 putting the country in a state of national emergency, a week after she issued it, noting that the threats that presented a "clear and present danger" to her government have been "crushed." Financial markets fell swiftly on the day of the declaration although they recovered quickly, and even managed to rise higher, last week. The peso rose to a fresh three-year high against the dollar last Friday after it closed at P51.18, 2% higher from the previous week. The last time the peso traded at these levels was more than three years ago in August 2002. So far, the peso has risen 3.13% against the dollar since the start of the year. Last year, it was Asia’s best performing currency after gaining more than 5%. Banks said financial markets appeared to have been shielded from the political tension. "Investors are focusing more on the country’s fundamentals, our improving fiscal state," a dealer from a bank said. "The market is desensitized from the political troubles and fundamentally, we are still doing good," another dealer said. Traders said the government’s commitment to improving its fiscal condition is giving investors the confidence they need. Meanwhile, the five-year benchmark bond reissue on Tuesday is expected to fetch around 8.3%, the same rate it fetched during the bond swap. "It is going to be close to the bond exchange rate. It will probably range around 8.25% to 8.4%," a bond dealer from a local bank said. Banks said pressure for upward movement is being offset by liquidity. "Although the current rates are really low, there is too much liquidity in the market," another dealer said. - Karl Lester M. Yap/ BusinessWorld Economy to benefit, says BSP “What is so bad about a strong peso?" This is the question the Bangko Sentral ng Pilipinas (BSP) is posing to those who have been criticizing the local currency’s bull run as it said the peso’s strength should be more a source of optimism rather than concern. If the peso’s strength is sustained, the public will eventually benefit from lower consumer prices and improved government services, BSP Deputy Governor Diwa C. Guinigundo told reporters on Friday. While it may be true that the currency’s strength has been affecting the country’s major foreign exchange earners, Mr. Guinigundo said it should not at all set competitiveness back because exporters could also benefit from lower priced imported inputs. Export competitiveness, he said, does not solely hinge on foreign exchange earnings, because exporters can compete better through improved productivity and by finding new markets and new products. Likewise, a reduction in the pesos received by the beneficiaries of overseas Filipino workers (OFWs) would be offset by an increase in their buying power, the central bank official said, as a strong currency will also result in lower inflation. Mr. Guinigundo said the peso’s appreciation will also result in lower foreign debt service payments. "This will allow the government to spend more on infrastructure and social spending like education and health," he said. "If there are good underlying fundamentals then investors will be attracted to come in and this will mean more job opportunities," the BSP official said. The central bank said the sustained inflows of portfolio investments, OFW remittances and exporter dollar sales have been providing support for the local currency. The currency’s rally has likewise been fuelled by improvements in the fiscal deficit. But some economists have not welcomed the peso’s appreciation and are calling for central bank intervention. With the peso at a little over P51 to the US dollar, the exchange rate should be brought back to last year’s P55-56 levels to protect exporters and OFWs, University of Asia and the Pacific (UA&P) economist Victor A. Abola has said. "We cannot allow the peso to strengthen some more. It is ridiculous because as I said, our exports would be uncompetitive, and we are already uncompetitive as it is now, and our OFWs, which we call our heroes, are going to be penalized. Is that the way we treat our heroes?", he asked. Mr. Guinigundo has repeatedly said that monetary authorities will be in the foreign exchange market not to intervene but only to smoothen extreme cases of volatility. The BSP official stressed that monetary authorities have no bias for either a strong of a weak currency, opting instead to let market forces determine the exchange rate. - Karen L. Lema/BusinessWorld