Peso rises to 3-year high

The peso on Friday finished at its strongest level in more than three years, on robust inflows of foreign exchange, as investors trooped to emerging markets, encouraged by positive news coming from Greece.

European leaders have agreed on a new bailout plan for Greece, committing a $155-billion rescue package for the troubled economy. This encouraged investors to bet on emerging markets’ assets which offer higher yields.

“The fundamentals, growth prospects and the fiscal side remain positive in the Philippines,” said Lito Biacora, vice president for treasury at Bank of the Philippine Islands. “There is improvement in sentiment for riskier assets due to some resolution in Europe.”

The peso closed at 42.40 against the US dollar on Friday, a level that has not been seen since May 6, 2008 when the local currency closed at 42.28 against the greenback.

Bangko Sentral Governor Amando Tetangco Jr. said the Philippines was among the emerging markets that had been receiving strong inflows from abroad because of expectation that they would grow faster than advanced economies. “A lot of inflows were coming in again because of the push and pull factors,” he said.

Short-term foreign funds invested in local stocks, government securities and peso-time deposits hit more than $9 billion in the first half of the year. Of the total, more than $2 billion were retained in the local financial market, contributing to the appreciation of the peso.

Tetangco said those inflows were “affecting the movement not only of the peso but also of the other currencies in the region.”

He said the inflows also pushed the Philippine Stock Exchange index to a new record level this week. “The stock market continues to go up, and part of it is being funded by foreign inflows,” he said.

The PSEi, the 30-company benchmark index of the Philippine Stock Exchange, closed at 4,478.36 on Friday, near its record.

Jose Mario Cuyegkeng, a senior economist at ING Bank N.V., said the peso was expected to further appreciate against the US dollar in the coming months.

Cuyegkeng predicted that the peso would end the year at 42.25 per dollar, and achieve an average rate of 43.40 per dollar for the whole of 2011, stronger than 45.11 to the dollar in 2010.

He said the peso would average 42.50 against the dollar in 2012. –Roderick T. dela Cruz with Bloomberg