Peso to hit 37.2:$ in 2008 as remittances pour in - HSBC

Investment lender HSBC said Thursday it expects the Philippine peso to surge to as high as P37.2 against the US dollar this year, due to strong foreign exchange inflows from overseas Filipinos and investments. However HSBC said, the strong local currency will accompany a slowdown in the country's economic expansion. The lender said the Philippines' gross domestic product will only grow 5.9 percent in 2008, after expanding more than 7 percent in the first three quarters of 2007. HSBC said average inflation for the year will be 4.1 percent. "We are quite bullish about foreign investments this year particularly in the services sector such as business process outsourcing and tourism development," Frederic Neumann, HSBC economist, said. Neumann said the peso is likely to see more upside this year as the economy still has room for a stronger local currency. In face of surging foreign exchange inflows following drastic cuts in US interest rates, Neumann said the Bangko Sentral ng Pilipinas will likely tolerate further appreciation of the peso. The US Federal Reserve's 75 basis-point rate cut, and successive cuts across the globe resulting from that move, is expected to release even more liquidity into the financial market and Neumann said these funds would go straight into Asia. "We are looking at a process where foreign exchange would flood into Asia because of lowering interest rates in the US," Neumann said. Neumann said the inflow of remittances from overseas Filipino workers would also be sustained this year and this would support an even stronger peso. "That would put the pressure on the peso and we believe that the central bank would take a very pragmatic view," Neumann said. However, Neumann said that an appreciation of the local currency to P36:$1 or even higher to P35:$1 would be a burden to the economy. But Neumann said the peso's strength is more if a political issue than an economic one, seeing that overseas Filipinos, the main contributors to the local economy's growth, are the hardest hit by a stronger local currency. - GMANews.TV