Peso to remain at 46 to dollar in 2010

MANILA, Philippines - The peso is expected to average slightly lower than the 45-to-the-dollar next year, or practically the same as the 46-to-the-dollar levels ending 2009.

Likewise, the 2010 growth forecast of 3.3 to 3.5 percent, is a “workable forecast”, coming from the anticipated modest growth of one percent in 2009, according to one of the leading treasurers among the country’s commercial banks.

Security Banking Corp. senior vice president and treasurer Rafael S. Algarra Jr. sees 2010 to display an environment of low inflation, low interest rates, and a cautious investment appetite.

“Recovery will be gradual and tedious, a step-by-step growth process marked by occasional dips,” Algarra said. “We have seen the worst in 2009, a one-percent growth rate.”

Interest rates will be low much like what is experienced in the final three months of the year. The Monetary Board of the Bangko Sentral ng Pilipinas (BSP) last week maintained policy rates, with no inclination of increasing the same in the foreseeable future.

“If there will be any significant movement in interest rates, it will likely occur in the latter part of the third quarter or the last quarter of 2010,” the Security Bank executive added.

The Monetary Board will likely wait for signals from the US Federal Reserve (US Fed) and await the results of the national elections. The US has extended its stimulus package in a bid to avoid a double dip of the faltering economy.

The US Fed had indicated that any changes in interest rates would occur after the first semester or when the economy has reigned in on all extraordinary conditions. The same may be true for the country’s monetary regulators as it takes into consideration the conduct of the May elections.

Nonetheless, the Philippine economy is expected to stay in tandem with the Emerging Asia economies, perceived to lead all economies to recovery.

The strongest contributor to the country’s recovery will still be remittances sent to the country by overseas Filipinos.

“It will likely grow by double digits,” the Security Bank executive added.

Money sent by overseas Filipinos this year is forecast to grow by four percent, lower than previous years, but outstanding nonetheless if compared to other remittance-rich nations.

In 2008, remittances reached $16.4 billion and is expected to knock at $17 billion this year. In peso terms, it may be slightly lower but significant nonetheless as it continues to spur consumption.

“As the global economies recovery, including the US, it may reach double digits anew,” Algarra said.

The US, which has the largest concentration of overseas Filipinos, has shown some signs of recovery and its employment figures were not as bad as anticipated.

“Filipinos based in the US have continued to send, and will send, considerable amounts as they are found in less affected sectors such as the services, medical, education, and government, where the economic impact was not as badly. Other nationalities such as the Mexicans were adversely affected as they are found more in the manufacturing sector,” the Security Bank treasurer stressed.

Private and corporate investments will stay active albeit cautious. Areas of investments such as fixed income, equities, commodities and foreign currency markets are still workable options depending on the risk appetite and requirements of the investors.

“We came from crisis situation, thus there is still no clear trend from either the fixed income or equities market. None (of the investment options) has a strong footing other the other,” he said, adding that the country is still far from the 2006-2007 level of investments.

Philippine banks are extremely liquid but still very cautious and quick to ensure of not over-extending themselves. They are working on simple derivatives, nothing exotic.

In general, they have cleaned their bad asset portfolio, improved their capital base, and they are not shy in raising new capital in 2010.