Peso to average 46 to $1 — Buenaventura

The peaceful resolution of the country’s political crisis should allow the peso to stabilize and trade at an average of 46 to the dollar for the entire year, Bangko Sentral ng Pilipinas (BSP) Governor Rafael Buenaventura said yesterday.

At yesterday’s forum of the Foreign Correspondents Association of the Philippines (Focap), Buenaventura said "the peso will probably be higher at a low end of 44 to the dollar and a high end of 48 or an average of 46."

Buenaventura based his optimism on the elimination of the "political risk premium" that foreign investors had been pegging on the peso.

The peso skidded to all-time lows at the height of the impeachment trial against former President Joseph Estrada, free-falling to 55.75 on Jan. 17 when the public went to the EDSA shrine to demand his resignation following the decision of pro-Estrada senators not to open the second envelope that supposedly contained evidence the president accepted money from illegal numbers game. The euphoria that ensued after President Macapagal Arroyo took over sent the peso soaring to 47.50 versus the dollar.

Buenaventura said however, the peso’s recovery will be hobbled by a perceived slowdown in the economies of the US and Japan.

"A lot will depend on the US economy, on whether it will have a soft landing or not," Buenaventura said.

Currency traders agreed the peso will hit an average of 47.50 to the dollar and is likely to trade no more than 49 to the dollar.

Meanwhile, the appreciation of the peso is an indication of a growing optimism among foreign businessmen toward the Philippine economy, according to the chief executive of a foreign bank.

From an average of P50.93 to the dollar in January, the peso appreciated to an average 48.24 in February. Yesterday, it closed at 47.905 to the dollar.

"The peso is a reasonably good indicator of political sentiments throughout the last several months. The recent appreciation (of the peso) is an indication of the returning confidence (of foreign investors) in what is going on in the Philippines," Paul J. Lawrence, chief executive officer of HSBC in the Philippines, said.

However, foreign investors are looking for more indicators or positive signals by way of government policies and decisions that will cement their confidence in the Philippine economy.

One area of concern is the ballooning budget deficit which is forecast to range from a low of P145 billion to a high P220 billion.

"Overseas investors would like to see the budget deficit being addressed. They would like government to put out targets that are achievable, and that would be achieved or over-achieved so that the credibility in the Philippine recovery story could have some substance," the HSBC chief executive told The STAR.

Lawrence noted that at the moment, there is a reasonable degree of optimism among overseas investors. But the same investors are looking for a certain degree of transparency in government’s policies and undertakings.