Peso seen to depreciate further

The peso is expected to continue to weaken against the dollar next year, threatening the country’s growth prospects, the Congressional Planning and Budget Department (CPBD) said in a recent report.

The CPBD’s foreign exchange forecast for next year is anywhere from 43.50 to 46.50 against the dollar.

This is lower than the latest forecast range of the Development Budget Coordination Committee of 42 to 45 to the greenback for 2009.

On the other hand, the CPBD expects inflation for next year to fall within the six-to eight- percent forecast range of the CPBD.

“By 2009, certain supply-side constraints would have been resolved to mitigate inflation below the 8.0 percent level assumed in the BESF (Budget of Expenditures and Sources of Financing) although breaching such level remains a distinct possibility,” the CPBD said.

Nevertheless, the Congressional think-tank said there is a need to boost food supply in the country to stabilize food prices.

“Breaking down the barriers to the flow of both inputs to and outputs of agriculture would not only mitigate the cost of production but also fuel further investments and foster competitive prices for agricultural produce,” the CPBD said.

Inflation rose 12.5 percent in August, the highest level in 17 years. The latest figure is above the 12.3-percent revised inflation rate recorded in July but within the Philippine central bank’s forecast range of 11.8 percent to 12.6 percent for the month.

The CPBD said that if the peso continues to depreciate and inflation accelerates further, the economy will continue to face challenges.

“Amid downside risks, the economy faces the challenge of sustaining structural reforms necessary to mitigate vulnerabilities and withstand uncertainties,” CPBD said.

The government expects gross domestic product to expand anywhere from 5.5 percent to 6.4 percent this year and from 6.1 percent to 7.1 percent in 2009.