Peso closes at fresh 56-month high

MANILA, Philippines - The peso hit a new 56-month high yesterday, erasing a record set just last Wednesday on the back of strong remittance inflows.

The local currency rose to 41.05 to a dollar from 41.06 the previous day. This was the peso’s strongest performance since March 7, 2008 when it hit 40.85.

Dollars traded reached $1.036 billion, higher than Wednesday’s $968 billion.

“The advent of remittance season helped drive sentiment and contributed to the peso’s appreciation,” a trader at a local bank said in a phone interview.

Remittances from overseas Filipinos are expected to flood the economy as the holiday season nears. This is seen to contribute more to peso demand and thus help it to strengthen.

As of August, remittances reached $13.733 billion, up 5.5 percent from year-ago levels, data from the Bangko Sentral ng Pilipinas (BSP) showed.

So far, the local currency has appreciated by 6.36 percent since its last trading day in 2011, making it one of Asia’s best performing currencies. The strong peso prompted BSP to encourage public and private firms to prepay their foreign debts.

“Both government and the private sector have been encouraged to prepay their external obligations,” BSP Deputy Governor Diwa Guinigundo said in a text message to reporters.

A strong peso lessens the value of dollar debts and should allow firms to settle them earlier, Bank of the Philippine Islands economist Emilio Neri said in a phone interview.

“But the main objective of that advice is to prevent or limit the BSP’s need to intervene in the spot market,” he explained. By prepaying foreign debts, demand for dollar increases and thus strengthen the greenback against the peso.

BSP, which generally kept a market-determined exchange rate, has intervened in the foreign exchange market to prevent the peso from firming up too much. A strong peso, while making imports cheaper, could trim the value of dollar export earnings and remittances.

“Sharp, prolonged peso appreciation could be destabilizing. This is the reason why the BSP has been very vigilant in preventing volatility in the FX (foreign exchange) market,” Guinigundo said.

The BSP has a 42-45 to a dollar assumption for the year.