Peso rises to 31/2-year high of 51.43 to dollar

The peso rose to a three-and-a half-year high of 51.43 to a dollar during intraday trading yesterday after Standard & Poor’s raised its outlook for the country’s debt rating to "stable" from "negative" on optimism the government will continue to narrow the budget deficit following this month’s increase in expanded value-added tax (EVAT) rates.

At the Philippine Dealing System (PDS), the peso closed at 51.48, up 25 centavos from Thursday's close of 51.73 to $1.

The peso also strengthened after a report showing the country’s exports rose in December at the fastest pace in more than a year, increasing exporters’ demand for the local currency.

"Amid good inflows of money into emerging markets, rising exports and the S&P news will further encourage investors to put money into the nation, supporting the currency,’’ said Tsutomu Soma, a bond and currency trader in Tokyo at Okasan Securities Co.

"These are really good factors for the peso and the outlook for the currency is really bullish in the long-term.’’

The peso advanced 0.8 percent this week to 51.48 against the dollar, the highest close since Aug. 2, 2002, according to the Bankers Association of the Philippines. Turnover was heavy with total value reaching $537.50 million.

The currency may rise to about 50 to the dollar by the end of March, Soma said.

The peso buckled under pressure earlier following the announcement by Moody’s Investor Service that it had decided to retain its "negative" credit outlook rating on the Philippines.

This meant that as far as Moody’s is concerned, the Philippines is still on a trajectory headed towards a credit rating downgrade despite the fiscal reforms undertaken by the Arroyo administration.

Shortly after Moody’s formal announcement, however, S&P said it was upgrading its credit rating outlook from "negative" to "stable," indicating that it was not about to downgrade any of its sovereign credit rating.

If the Arroyo administration is able to deliver its targets, balance its budget and show that it could ease its heavy debt burden, the country is one step closer to a "positive" outlook rating which would indicate that an actual credit rating upgrade is in the horizon.

Traders said the market appeared to be more inclined to celebrate rather than wallow in the wake of the Moody’s announcement. "They prefer to look at the water as being half full instead of half-empty," said one trader.

According to the Bangko Sentral ng Pilipinas, on the other hand, the movement of the peso was well within parameters.

"There has been some demand from corporate dollar users so there was some weakness but there is also inflow and clearly positive sentiments," said BSP Governor Amando M. Tetangco Jr.

According to Tetangco, the market’s judgment of the on-going fiscal consolidation efforts showed that despite prevailing risks, sentiments are still generally upbeat.

At the moment, the Philippines is rated four notches below investment-grade by Moody’s; three notches below by S&P and two notches below by Fitch Ratings which is expected to start its annual evaluation in April.

Some analysts said Moody’s will "inevitably upgrade its outlook" but in its statement on Thursday, the credit rating agency said government would have to do more to bring down the country’s "exceptionally high public sector debt" down to a level consistent with its credit rating.