At the Philippine Dealing System (PDS) yesterday, the peso gained more momentum during intraday trading, hitting a high of 51.04 before closing at 51.05 or 16 centavos higher than Monday’s close of 51.21 to the dollar.
Analysts have been expecting the peso to hit the 50 to $1 level and stay there until the end of the year, mainly buoyed by strong remittances from overseas Filipino workers.
DBS Research Group said expectations for robust yearend inflows from overseas foreign worker (OFW) remittances should continue to boost the peso.
In the first half of the year alone, OFW remittances amounted to almost $6 billion, up 15.4 percent year-on-year, and well on track to exceed the $10.7-billion inflow recorded in 2005.
"We do expect peso gains to be gradual owing to the desire of the central bank to build up foreign reserves to $25 to $30 billion in the next five years," DBS said.
Strong OFW remittances helped beef up the country’s international reserves which reached $21.27 by the end of July. At this rate, analysts expect the country’s reserves to hit $30 billion by end-2010.
"With remittances largely absorbed by the central bank’s reserves building exercises, strong gains in the peso will need to be facilitated by foreign investor inflows into Philippine assets. We remain comfortable with our forecast for peso-dollar exchange to hit 50 by end-2006," DBS said.
The Bangko Sentral ng Pilipinas (BSP) itself has expressed optimism that the peso will prove resilient against market volatility as the steady inflow of foreign investments and remittances continued to boost the country’s international reserves.
BSP Governor Amando M. Tetangco Jr. told reporters that the country’s healthy reserves assured that the peso would enjoy "relative protection" against excessive volatility.
"As far as we can see, the peso is just trading within a narrow market-determined range," Tetangco said. "Whatever rates we are seeing now reflective market sentiments and the sentiment right now recognizes that despite external shocks, our fundamentals are basically improving."
According to Tetangco, the BSP was only on the lookout for excessive fluctuations in the exchange rate that would indicate high volatility levels that might not be sustainable.