Businesses expect strong peso, rising interest rates

Published by rudy Date posted on May 30, 2011

PHILIPPINE companies expect a continuing appreciation of the peso against the US dollar and a similar increase in bank interest rates in the second half this year, a Bangko Sentral survey says.

The bank’s quarterly business expectations survey says the number of respondents who anticipate a stronger peso in the third quarter, minus the number who expect otherwise, reached 16.3 percent.

This percentage was higher than the 14.1 percent recorded in the previous survey conducted in the first quarter, and the 6.7 percent tallied a year ago.

Bangko Sentral Governor Amando Tetangco Jr. had earlier said the strong dollar inflows would support the peso, hence easing the impact of imported inflation.

The peso closed at 43.37 against the greenback on Friday, which remained within the Bangko Sentral’s foreign exchange assumption of 42 to 45 pesos to the dollar this year.

“Respondent firms expected the peso to appreciate and inflation and interest rates to go up in the second quarter and third quarter of 2011,” the central bank says.

“Inflationary expectations are likely to remain high this year as the number of respondents who anticipated higher inflation and interest rates in second quarter and third quarter of 2011 increased compared to the previous quarter’s survey,”

The monetary authority says the increasing cost of fuel and other commodities overseas and the domestic economy’s strong performance contributed partly to the respondents’ higher inflationary expectations.

“Meanwhile, the stronger peso relative to the dollar, which would soften the impact of higher oil prices in the domestic economy, is perceived by respondents to continue in the current and next quarters,” the central bank says.

More companies anticipate tighter financial conditions in the second quarter because of the low collection of account receivables.

The employment outlook index was also going down. While companies across all sectors continued to expect hiring in the third quarter, the number of respondents who said so declined from the previous quarter’s survey.

By sector, construction and services, particularly financial intermediation, were the most optimistic in their employment outlook. But the number of firms with expansion plans declined, as well as the average capacity utilization rate.

About one of every four companies in the industry sector (24.7 percent) indicated expansion plans for the third quarter.

The survey, conducted April 1 to May 10, covered 1,625 firms nationwide, and the response rate was 80.4 percent. –Roderick T. dela Cruz, Manila Standard Today

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