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Peso appreciates further, nears 40 against US dollar
(Manila Standard Via Thomson Dialog NewsEdge) The peso further strengthened on news of a larger-than-expected surplus in the balance of payments and steady remittance flows, with traders saying it could rise above 41 soon.
The peso rose to as high as 41.05 against the US dollar after opening at 41.15, up from Friday's close of 41.28. It closed at 41.23 after trading within a 19-centavo band.
Volume turnover stood at $656.7 million, higher than Friday's $503.7 million, with the peso averaging at 41.133 against the dollar.
Security Bank treasurer Rafael Algarra said the peso was headed for a further appreciation, adding that the market would test the 41 level soon. He said the peso could break above 41 if US Federal Reserve Board cuts its rates again.
Banco de Oro market strategist Jonathan Ravelas said steady remittance flows and portfolio flows would keep the peso strong but warned that a correction might be forthcoming.
The central bank liberalized its foreign exchange regulations last month in a move to temper the appreciation of the peso. The first wave of foreign exchange liberalization implemented in April, however, did little to slow the peso's rise.
Even if you bring down interest rates and it affects the market rates, it's still possible that the foreign exchange will continue to come in. But of course, with lower rates, there's less incentives for them to come, so this will help moderate peso appreciation, said Bangko Sentral deputy governor Diwa Guinigundo said.
It's a collateral effect, this disincentive. But lower rates could result in a more moderate movement of the peso.
The central bank said the peso's strength would depend mainly on the inflows.
Guinigundo said the central bank continued to review its foreign exchange policies, hinting that the recent liberalization of regulations might not be the last.
The government expects foreign exchange rate at 42 to 45 against the US dollar this year because of concerns on the US subprime crisis and the corresponding risk aversion and global economic slowdown.
A slowdown in global economic growth will likely hit Philippine exports labor.
The country's balance of payments surplus has reached $8.6 billion on Dec. 19, exceeding the central bank's full 2007 forecast of $8 billion to $8.5 billion, senior central bank officials told reporters.
Copyright 2007 Kamahalan Publishing Corp. , Source: The Financial Times Limited
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