Peso to weaken further on improving US economy

By Kathleen A. Martin, The Philippine Star

Posted at Dec 29 2014 07:55 AM | Updated as of Dec 29 2014 03:55 PM

MANILA - The peso may further weaken against the greenback as the latter gains strength on the improving US economy, the Bangko Sentral ng Pilipinas said, stressing the local unit remains dependent on market forces.

“At the moment, there is a growing market view for a strong USD (US dollar), given the divergence of policy in AEs (advanced economies) and improving growth prospects in the US,” BSP Governor Amando M. Tetangco Jr. told reporters last week.

“With this, some downward move on the peso can be expected, but we will be watchful of market conduct that could increase volatility,” he continued.

The peso closed P44.68:$1 last Dec. 23, depreciating from its P44.62:$1 finish on Dec. 22. There was no trading from Dec. 24 to 26, while trading this week will only be on Dec. 29 due to regular and special holidays.

“The peso has so far remained resilient because of seasonal flows, including OF (overseas Filipino) remittances,” Tetangco pointed out.

However, he stressed “the policy remains the same – to keep the value of the peso essentially market-determined. We won’t go against the fundamental trend.”

The US Federal Reserve earlier this month signaled interest rates may start rising next year as recovery in the US economy continues, although Chair Janet Yellen said the levels would remain near-zero for “at least a couple of meetings.”

Data last week showed the US economy expanded by five percent in the third quarter, its fastest pace in 11 years. The news further pushed the dollar up against the yen and the euro as analysts forecast the Fed could start raising interest rates by mid-2015.

“There is also the market view that given the Fed’s patience, some more juice can be squeezed from the interest differential in favor of the EME (emerging market economies) bonds before shifting more aggressively to the USD,” Tetangco said.

“However, the fundamental strength of the EMEs, including the Philippines remain a pull factor for investors to keep a portion of their portfolios in EMEs. The recent Moody’s upgrade should keep the Philippine firmly in the investor radar screen,” he added.

Philippine economic growth averaged 5.8 percent in the nine months to September, way below the government’s 6.5-to 7.5-percent target but still one of the fastest levels in Asia.

Moody’s Investors Service earlier this month upgraded the country’s credit rating to a notch above the minimum investment grade on manageable debt levels, still favorable prospects of the domestic economy, and the resilience of the Philippines to external pressures.

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