BSP sees peso recovery

MANILA, Philippines - The Bangko Sentral ng Pilipinas said it expected the peso to recover lost ground in the fourth quarter, adding that it detected no indication of speculation in the currency market that would push the local notes to artificially low level. BSP governor Amando M. Tetangco said over the weekend that the seasonality of foreign exchange inflows would buoy the peso to a certain degree, especially in the fourth quarter when remittances usually peak. Tetangco said the balance of payments would continue to post a surplus, albeit significantly smaller than the 2007 surplus of $8.6 billion. This year, the BSP projected the BOP surplus to reach $2.5 billion, a revision of its earlier projection that the surplus would at least hit $4.6 billion. “Still, this is a surplus and it would help the peso gain back some ground for the balance of the year," Tetangco said. Traditionally, Tetangco said the last quarter of the year has produced peso strength, bolstered by remittances from overseas Filipinos sending money back to their families for the holidays. The BSP had projected dramatic declines in foreign direct and portfolio investments but OF remittances were expected to hit $16.4 billion this year, up 10 percent from last year despite the general slowdown in the global economy. Tetangco said the BSP expected total remittances coursed through banks to hit $15.9 billion, also rising by 10 percent compared to last year. He said this would give the peso some momentum especially during the peak remittance months. But Tetangco said the depreciation of the peso was easily explained by current market forces that did not necessarily indicate speculation against the currency. “There is always some amount of positioning by banks and other market participants when there are changes in the operating environment, such as what is occurring right now," Tetangco said. “Would I call that speculation? Not necessarily," he pointed out. “Banks have been reporting corporate demand and maturities for their recent dollar purchases so that could explain it as well." The peso dropped below the P45:$1 mark last week and closed at P45.50 on Friday as the market got even gloomier in the wake of reports that inflation rate skyrocketed to 11.4 percent in June—the highest level in 14 years. This fuelled expectations that the BSP would increase its key policy rates when the Monetary Board meets on July17. For now, Tetangco said the BSP fully expected the peso to react to foreign exchange inflows and outflows as well as weaker stock markets that affected currencies in the region as well. Economic planners have used the assumption that the peso would range between P42 and P45 to the dollar to lay down their macro-economic projections and fiscal targets for 2008. - GMANews.TV