Xmas Season to Cheer Peso Further
by Ron Harui

SINGAPORE (Dow Jones) – Christmas will be a particularly joyful season for the Philippines this year and a buoyant season for the country’s currency.

Filipinos working overseas are sending home money in record amounts and these remittances usually pick up significantly in December, which will spur the already strong peso higher in coming weeks.

Growing optimism about the government’s improving finances and a central bank monetary policy biased toward tightening are also helping to lift the currency against the greenback.

The dollar will likely continue to fall against the peso toward the 2005 low set in March of P53.805.

Underscoring the robust peso repatriation trend, Bangko Sentral ng Pilipinas Governor Amando Tetangco said Tuesday that overseas Philippine workers’ remittances totaled US$7.9 billion between January and September, up to 27 percent from the same period a year earlier.

The central bank expects a record US$10.3 billion in remittances for all of 2005, up from the previous record US$8.55 billion in 2004. Even more positive for the peso’s short-term prospects is the central bank’s view that actual remittances are much higher than official figures with around one-third of the funds repatriated coming through non-banks or informal channels such as friends and relatives returning from visiting overseas.

Remittances reported by the central bank “represent only cash remittances through the banking system,” Tetangco said late last month.

Adding to the bullish peso story is an improving fiscal outlook stemming from a narrower-than-expected budget deficit for the Philippines in October and the possibility of another interest-rate hike next month.

The government recorded a P7.1 billion budget deficit in October, well below a P10.2 billion limit that the government had set for the month as part of efforts to overhaul its finances.

For the first 10 months of the tear, the budget deficit was P115.5, well below a targeted ceiling of P156 billion. For the full year, the government targets a deficit of P180 billion.

On monetary policy, the central bank stood pat at a policy meeting Thursday. But Tetangco said the Monetary Board still sees risks to inflation, particularly still high domestic liquidity, and he suggested that further monetary tightening is possible.

“Overall conditions for inflation and output may require a preemptive monetary response,” he said. “In particular, potential shifts in the public’s inflation expectations continue to be a major policy concern given the possibility of a sustained deviation from the government targets until 2007.”

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This article was originally published in the Manila Bulletin.