Peso seen dropping to 53:$1 by yearend

MANILA, Philippines – Global banking giant Hongkong and Shanghai Banking Corp. (HSBC) said it expects the Philippine currency to weaken to 53 against the dollar by the end of the year as the inflow of overseas workers’ remittances continues to slow down and the US economy remains in recession.

“Much depends really on how the US economy will perform, especially the employment figures,” Jose Arnulfo Veloso, treasurer and head of global markets of HSBC Philippines, said in a media presentation yesterday.

He said as the US economy continues to linger in recession and unemployment widens at a record pace, growth for the Philippines and the rest of the emerging economies will slow down anew.

With the US – the leading source of overseas workers’ remittances to the Philippines – reeling from an economic contraction, the inflow of remittances has decelerated this year.

In the first three months of 2009, remittances grew a mere 2.7 percent to $4.1 billion. In February alone, growth slowed to 4.9 percent from 16 percent a year earlier while in March, remittance expansion further crawled to 3.1 percent from 9.4 percent in the same month last year.

The Bangko Sentral ng Pilipinas (BSP) earlier said remittances would likely post flat growth this year. In 2008, total remittances reached $16.4 billion.

Meanwhile, Veloso said the peso – which closed at 47.50 to the dollar yesterday – has yet to breach the psychological resistance level of 50.50.

“But if the 50.50 level is consistently breached and maintained for three to five days, then it will definitely move on the 52 to 53-level against the dollar,” he added.

The peso hit its strongest level at 40.25 in Feb. 28 last year while it was weakest at 56.46 on March 22, 2001.

The HSBC executive also said he anticipates the BSP will further reduce interest rates by between 25 to 50 basis points but cautioned that monetary authorities against any more cuts.

“What is more important is that government pick up the pace on spending on infrastructure and other priority projects,” he added.

Veloso said that the Philippine economy will remain resilient as long as private consumption remains buoyant with the help of remittances and the business process outsourcing sector.

Earlier, HSBC chief economist Frederick Neumann said he believes the Philippines had already experienced the worst.

“The Philippines hit the bottom in the first quarter of 2009, and we see the economy picking up in the second semester, leading to stronger growth in 2010,” he said. –Ted P. Torres, Philippine Star