Peso likely to reach P40-$1, says Barclays Capital

The peso-dollar exchange rate would average at P40:$1 in the next 12 months, Barclays Capital said Wednesday revising its earlier forecast of P44-$1. In a research note released to the media, the London-based investment bank said the exchange rate could even improve sharply to P42.50 per dollar in three months. “Given the robust domestic economic fundamentals — a sharply narrower funding gap, robust remittances inflows, and the central bank’s apparent comfort with currency appreciation — we are lowering our three-month dollar or peso forecast to P42.50 and our 12-month forecast to P40," the bank said. On Wednesday, the exchange rate closed unchanged at P44.26:$1 from Tuesday’s close, according to data released by the Philippine Dealing and Exchange Corp. The Bangko Sentral ng Pilipinas (BSP) is “getting more comfortable with the forex appreciation" as indicated by the steady rise in the central bank’s foreign exchange reserves, the investment bank said. Barclays noted the $5.4-billion increase in foreign-exchange reserves of BSP in the past eight months. It noted the $5.4 billion increase in Bangko Sentral’s reserves the past eight months, including a valuation loss, a dollar exchange rate index gain of another 7 percent that “understated the likely amount of Bangko Sentral’s intervention in the spot market." “We believe the BSP has also been intervening via the forward market – its forward book has risen to $16.9 billion as of July, up $3.3 billion from December. “By our calculations, forex intervention (excluding valuation effects) averaged $1.2 billion per month during January to July 2010, slightly below $1.3 billion seen in 2007. The dollar exchange rate index depreciated by 11 percent during 2007, boosting the value of the reserves. Given the cost of intervention, we believe such high levels of intervention cannot be sustained," Barclays said. —JE/VS, GMANews.TV