Philippine Peso (PHP) to ‘Catch Up,’ Rise 3%, Standard Chartered Says

Sept.30,2009  -- The Philippine peso will gain 3 percent by the end of March as economic growth accelerates amid increased spending and because the central bank will refrain from raising interest rates, Standard Chartered Plc said.
 
The $167 billion Southeast Asian nation’s economy will expand 1.5 percent this year and 3.3 percent in 2010, the U.K. bank predicted in a research note today, raising previous forecasts of 0.7 percent and 2.7 percent. Rising remittances from 9 million Filipinos overseas and foreign investment in stocks will boost the external balance of payments surplus and support peso appreciation, according to Standard Chartered.

“The peso will outperform currencies of major trading partners like the U.S., Japan, Europe and China in the next three to six months,” Thomas Harr, a Singapore-based currency strategist at the bank, said in an interview.
 
Capital outflows that have restrained gains in the peso this year will return, Standard Chartered said, expecting the currency to “gradually catch up” with strength in other Asian exchange rates such as those of the South Korean won and Indonesian rupiah.

The currency, which traded at 47.395 per dollar as of 2:10 p.m. in Manila, will climb 0.8 percent to 47 by year-end and rise to 46 by March 31, Standard Chartered forecast. The peso appreciated 1.6 percent this quarter, lagging behind an 8 percent gain in the won and 5.6 percent for the rupiah,according to data compiled by Bloomberg.

                       Downgrade Unlikely

Standard Chartered says the Philippines is unlikely to face a credit-rating downgrade because of a widening budget deficit as the increase in spending will support economic growth ahead of elections scheduled for May 2010.The bank kept its budget deficit forecast for 2009 at 320 billion pesos ($6.8 billion) as the rebuilding following Tropical Storm Ketsana will require additional spending. The government projects a record shortfall of 250 billion pesos.

“Even with the higher deficit, the Philippines does not face a near-term risk of a rating downgrade,” Harr said. “Investors are not yet focused on next year’s elections,” muting political risks, he said.The central bank, which meets on monetary policy tomorrow, will keep its overnight borrowing rate at a record low of 4 percent and hold it there for 2009 and 2010, Harr wrote.
 
“We expect the Philippine economy to recover over the next two years,” according to the note that Harr co-wrote with economist Simon Wong. “Remittances tend to pick up in the fourth quarter, ahead of Christmas.”

Standard Chartered raised its short-term rating on the peso to “overweight” from “neutral.”