Standard Chartered: Peso to strengthen to 41:$1 this year

The peso is expected to strengthen to P41 to $1 this year due to higher inflation and a deteriorating trade balance, according to projections by the British-owned Standard Chartered Bank. In particular, the peso will appreciate to P42 instead of P43 to $1 in the third quarter, and to P41 instead of P42 to $1 in the fourth quarter from about P43.30 to $1 in the second quarter, Standard Chartered discussed in its research note titled “Philippines – Brighter Outlook for FX and Rates." Standard Chartered noted that the peso will likely grow stronger in the fourth quarter amid the expected robust remittances from overseas Filipino workers before the Christmas season. “In addition, we note the seasonality of the Philippine peso which is typically strongest in fourth quarter, followed by third quarter, whereas second quarter is the weakest quarter," the investment bank said. The Philippine currency appreciated to about P42.11 to $1 on Wednesday – the strongest level it reached in over three years. Standard Chartered also revised its short-term foreign exchange rating to overweight from neutral earlier in 2011 due to the deteriorating trade balance as a result of escalating food and energy prices, as well as the Bangko Sentral ng Pilipinas (BSP) policy to favor a stable peso. “In our view, both factors may turn more favorable for the peso in the coming months. We expect that the recent stabilization in global commodity prices will continue in the second half. This should mean that the Philippines' trade balance will stabilize whereas inflows from OFWs will likely continue to support the overall balance of payment," said Standard Chartered in its note dated July 21. The bank added, “Given high inflation, there is a strong argument for the Philippine authorities to tolerate gradual peso appreciation." Standard Chartered projects the peso appreciating to P40.75 to $1 in 2012, and to P40 to $1 in 2013. -- PE/OMG, GMA News