Peso seen appreciating at 42: $1 this year

MANILA, Philippines - New York-based think-tank Global Source Partners sees the peso strengthening against the dollar this year and next year on the back of the country’s strong macroeconomic fundamentals.

Global Source said the peso is expected to appreciate at 42 to $1 this year and at 41 to $1 next year.The think-tank also cited the robust remittances from overseas Filipino workers (OFWs) as well as strong earnings by the business process outsourcing (BPO) sector as major boost to the local currency.

“Though there may be volatility due to negative external developments, fundamentals continue to support this view especially with likely improvement in growth expectations, a pause to further narrowing of the interest rate differential, still healthy external payments position healthy on account of resilient remittances and strong BPO activity, and consequently still high dollar liquidity,” it added.

The peso almost touched the 44 to $1 level last Friday after hitting an intra-day low of 43.95 to $1. It closed at 43.755 to $1 or 5.5 centavos weaker than Thursday’s 43.74 to $1.

The peso continued to weaken against the greenback due to concerns over a possible Greek exit from the euro zone and weak manufacturing data from China and Germany.

The think-tank believes that the country’s external payments position particularly the balance of payments (BOP) position would remain healthy this year on the back of strong capital inflows.

“On the whole, with a likely bigger current account surplus and a positive capital and financial account, the BOP should remain healthy this year,” Global Source said.

It pointed out that BPO service exports would continue to grow robustly even under threat of a global downturn and of a clampdown in advanced economies, particularly in the US that accounts for bulk or at least 80 percent of the client base.

It added that concerns about the sovereign debt crisis in Europe have lately resurfaced expectedly fueling global risk aversion.

“There has been some volatility of the financial account so far this year. After a rather long string of surpluses, the country saw net outflows of registered portfolio investment last February reportedly on account of profit-taking on equities and large outflows from peso government bonds due to a fall in yields,” it said.