P53:$1 seen by end-’09

THE PESO is expected to weaken further against the dollar by yearend as difficult economic conditions in countries hosting Filipino workers translate to less remittances this year, HSBC said.

HSBC Senior Asia Economist Frederic Neumann said the peso is likely to depreciate to around P53 per dollar by yearend, with remittances likely declining by 20% this year.

This means that if the central bank expects around $17 billion in remittances last year, inflows for this year could dip to around $14 billion, the lowest since October 2006.

This would put pressure on the peso, whose strength in the past few months came mainly from remittances, Mr. Neumann said.

"The recent stability [of the peso] came from strong remittance inflows (December being the seasonal peak in remittance) and the end-year improvement in risk appetite. However, we think the inflection point has arrived," he said in a research note dated Feb. 4.

He added that capital flows would not be able to provide support to the peso given the gloomy outlook on both foreign direct and portfolio investments.

Central bank officials expect foreign direct investments to post a flat growth, to total $2.6 billion this year.

Portfolio or "hot money" investments — foreign funds parked in local stocks, bonds, bank deposits and money market instruments — would not be worse than the $1.39 billion in net outflows last year.

Yesterday, the peso edged up against the dollar on the news that inflation continued to ease in January.

It closed at P47.42 per dollar, 10 centavos higher than the previous day’s P47.52 finish. It opened at the day’s low of P47.65 and went to a high of P47.38 before it settled at the day’s close.

Volume of transacted dollars reached $847.92 million, lower than the previous day’s $894 million.

"The inflation data pushed up the peso," a currency trader said.

Inflation last month declined to 7.1%, which was within the central bank’s forecast range of 7-7.9% for January.

The trader also said the local currency reacted positively to the rally in local stocks.

She also said prospects of a half-percentage point interest rate cut by the Bank of England (BoE) also gave boost to emerging Asian currencies such as the peso.

"The BoE might cut and the European Central Bank might keep its rates steady. This strengthened currencies across the board," the trader said.

The peso is expected to trade for P47.30-P47.70 per dollar today ahead of the release of the US non-farm payrolls data tonight. — Gerard S. dela Peña