Peso to strengthen to below 40:$1 - JP Morgan

The Philippine peso will strengthen to bellow P40 against the US dollar by 2008, boosted by the steady inflow of foreign exchange from remittances and investments, an economist from a top investment bank said. JP Morgan economist Sin Beng Ong said the peso could potentially go below P40 to the greenback next year as a result of the sustained strength of the country's large current account surplus. This announcement was made after Bangko Sentral ng Pilipinas officials admitted that the strong peso is beginning to have adverse effects on the economy. The central bank has said that it expects the country's balance of payments surplus to hit as high as $9 billion this year. Ong said this, which will come largely from portfolio investments and remittances from overseas Filipinos, would sustain the momentum of the peso. "For as long as the external economy is buoyant, the demand for Philippine labor will be strong. Remittances will continue to fuel consumption unless there is a massive shock such as cycles of recession and this is not something we expect to see," Ong said. According to the BSP the strong peso is beginning to cause stress on the Philippine economy. Preliminary studies by the BSP indicated that the economy was beginning to show early symptoms of the so-called Dutch Disease which could result in the sharp contraction of the economy if not addressed properly. According to Cyd Amador, central bank managing director for monetary policy, there were was evidence suggesting that remittances, in particular, could be setting off a cycle of ultimately negative side-effects of strong forex inflows. "There are other factors that affect the competitiveness of our products exported abroad. But the real appreciation of the peso has started to be apparent in 2007, when compared to other currencies in the region," Amador said. The Dutch Disease refers to the harmful effects of large inflows of foreign currency, beginning with loss of competitiveness that could lead to a decline in the manufacturing sector. - GMANews.TV