Peso advances to 43:$1

The peso closed at its strongest level in five months Friday, tracking the appreciation of regional currencies against the US dollar, on evidence that foreign capital continued to flow into emerging markets.

The peso gained P0.10 to close at 43 against the greenback, its strongest finish since closing at 42.70 on Nov. 5. A government report showing consumer prices rose less than economists predicted and the budget deficit narrowed also boosted the peso.

Some $1.461 billion changed hands at the spot market Friday, significantly up from $914 million on the previous trading day.

“The fear that interest rate increases would be rapid has dissipated after the inflation report, while the latest budget data showed the government has its finances under control,” said Bunny Bernardo-Recto, vice president at Chinatrust Philippines Commercial Bank Corp.

Analysts also said the general weakness of the US dollar as well as net purchases by foreign investors of local stocks supported the peso appreciation this week, when the Bangko Sentral also announced that its gross international reserves hit a new record high of $66.2 billion as of March.

The PSEi, the 30-company benchmark index of the Philippine Stock Exchange, also gained 21 points to close at 4,241.01 on Friday.

Foreign portfolio investments, or short-term capital from other countries placed in stocks and government securities, yielded a net inflow of $904 million as of March 26, up from $369 million year-on-year.

Bangko Sentral raised its borrowing cost by 25 basis points to 4.25 percent in March, which attracted more foreign capital into the Philippines seeking higher yields than the US treasuries.

Marcelo Ayes, senior vice president of Rizal Commercial Banking Corp., said he was expecting the peso to end the year at 42.50 to 42.80 against the dollar.

Hongkong and Shanghai Banking Corp., however, is more optimistic about its outlook on the peso, saying the Philippine currency could hit 37.50 by December, on strong balance of payments surplus.

The Philippines posted a balance of payments surplus of more than $14 billion in 2010, but Bangko Sentral said the figure could be lower this year because of expected higher imports and wider trade deficit, which would offset the expected 8-percent growth in remittances and the continued increase of the business process outsourcing sector export receipts. –Roderick T. dela Cruz, Manila Standard Today