HSBC sees PHL peso to surge to 37.5:$1 in 2011

The Philippine peso will likely appreciate to 37.50:$1 this year and to 35.50:$1 next year as the Bangko Sentral ng Pilipinas (BSP) is seen to support a stronger currency to cushion rising inflation, Hongkong and Shanghai Banking Corp. (HSBC) said Wednesday. HSBC managing director Frederic Neumann told reporters that the central bank will possibly allow the peso to appreciate further in the next two years to ease the impact of inflation due to rising prices of oil and food. For this year, the peso is expected to appreciate steadily at 40.50:$1 in the first quarter, 39.50:$1 in the second quarter, 38.50:$1 in the third quarter, and 37.50:$1 in the fourth quarter, according to the British banking giant. But when asked in an ambush interview, Wick Veloso — treasurer at HSBC Holdings Plc in Manila — personally believes that while the peso was bound to strengthen, the more realistic rate was around 41:$1 by the end of the year. Veloso said the projection of the HSBC's economic research team in Asia was a "very aggressive projection." His view is closer to an earlier forecast released by US-based investment bank Goldman Sachs Group Inc., whose economists believe that the peso upside was limited to around 41:$1. The country's macroeconomic foundation supports the bullish forecast growth of the peso over the near term, Neumann said. "Growth is expected to be strong. The exchange rate should reflect it." Neumann said the domestic economy is seen to grow by at least 5 percent this year and strengthen further to 5.8 percent next year due to accelerating private consumption and government spending and investments. He also said that since the Philippine economy is rapidly expanding, inflation — or the rate of change in prices — is expected to climb to 4.4 percent this year and to 4.8 percent next year, from 3.8 percent last year. The BSP has said the country's inflation will likely average at 4.4 percent this year and 3.5 percent in the next. Neumann pointed out that the Bangko Sentral was the only central bank in the region that has kept its policy rates steady when everyone in the region has acted preemptively against rising price pressures. The Monetary Board has placed the overnight borrowing and lending rates at 4 and 6 percent, respectively, since July 2009. Neumann is worried should the BSP keep its interest rates at record lows: "Unless interest rates go up, there will be a danger of inflation," he said. Neumann said the Philippines should increase its interest rates since "the Philippines has stood out in the region" for not having raised its key rates. The HSBC official also said the remittances of overseas Filipinos and the projected surplus in the balance of payments all point to a stronger peso. — JE/OMG, GMA News