Barclays Capital revises peso-dollar forecast to 41.50:$1 this year

The Philippine peso will strengthen up to 41.50:$1 this year, investment bank Barclays Capital said over the weekend, revising its earlier forecast despite the bullish outlook of several analysts for the currency. London-based Barclays previously saw the peso appreciating to 40:$1 as emerging markets, including the Philippines, contribute more to the world’s economy in terms of growth than developed economies in the aftermath of the global recession. Based on the new forecast, the diminished strength of the peso gives little comfort for millions of overseas Filipino workers, according to Barclays. “Given [the] broadly supportive fundamentals and dampening impact on inflation, we are raising our year-end forecast to P41.50 per dollar," Barclays said in a paper made available to finance reporters over the weekend. Barclays analysts pointed out that the Bangko Sentral ng Pilipinas (BSP) is “monitoring the peso’s real effective exchange rate." The central bank seems to be “comfortable" with the current exchange rate’s level, according to the investment bank. The peso closed at 43.65:$1 on Friday, down 17 centavos from 43.48:$1 Thursday. The Bangko Sentral will likely steer the exchange rate “in line with other regional currencies," Barclays said, noting that the value of the peso will be “in the middle of the pack rather than an outperformer." BSP Gov. Amando Tetangco Jr. had revised the central bank’s projection that the peso will average between P42 and P45 per dollar this year, instead of the original forecast of P45 to P47 per dollar. Last Feb. 16, Hongkong and Shanghai Banking Corp. projected that the peso will likely average at 37.50:$1 this year “to ease the impact of inflation due to rising prices of oil and food." Standard Chartered Bank, on the other hand, said the peso would possibly average at 41:$1 this year before appreciating further to 39:$1 next year. Growing threat of inflation The BSP said an estimated 60 basis points will be added to the headline inflation should the price of imported oil reach $144 per barrel. Nevertheless, inflation will settle within the central bank’s target range of 3 percent to 5 percent for 2011, Barclays analysts noted. Average inflation this year, Tetangco pointed out, will not exceed 4.4 percent. The investment bank still projected a 25-basis-point hike in the BSP’s policy rates when members of the policy-setting Monetary Board convenes this March 24. Another 50-basis-points will be added to the key rates in July, the investment bank added. The Monetary Board has placed the overnight borrowing and lending rates at 4 percent and 6 percent, respectively, since July 2009. Several analysts have said the Bangko Sentral has been tardy in addressing the growing threat of price inflation. But Tetangco recently acknowledged that the “scope that allowed them to keep the rates steady" has narrowed. — JE/VS, GMA News