MANILA, December 23, 2003  (STAR) By Des Ferriols - The peso is seen to close at 55.50 to the dollar by the end of the year, weaker than the previous forecast of around 55 to $1 due to rising political uncertainty, Bangko Sentral ng Pilipinas (BSP) Governor Rafael B. Buenaventura said yesterday.

Buenaventura said the peso will be weak in the remaining days of the year due to politics. "There’s too much (political) noise," he said.

According to the BSP chief, the BSP’s best estimates indicated that the peso would close the year at current levels.

At the Philippine Dealing System (PDS), the peso settled at 55.50 yesterday, down 10 centavos from Friday’s close of 55.40 to the dollar. Total volume traded amounted to $96.50 million on an average rate of 55.464 to $1.

The peso sank to a record low of 55.85 to the dollar in November when film star Fernando Poe Jr. said he would run for the presidency in May.

Buenaventura said they expect the local currency to remain volatile until the beginning of 2004.

However, he stressed the pressure may ease once the political noise dies down after the elections in May.

"Fortunately, our inflation is benign and it will allow us to remain accommodative in terms of monetary policy," Buenaventura said.

In the second half of 2004, Buenaventura said economic fundamentals would improve as the government acquires a fresh mandate in the elections.

"Right now, it is more important that the elections are conducted successfully," he said. "Whoever wins will have a fresh mandate."

For next year, the BSP expects the peso to weaken to as low as 56 to the dollar although monetary officials still see the currency swinging back to the 54 to the dollar level depending on the outcome of the elections.

Revising its macro-economic targets for 2004, the BSP said the peso-dollar exchange rate was projected to trade within a wide range of 54 to 56 to $1 due to continuing political uncertainties that would linger throughout 2004.

The BSP also announced its inflation target for 2004 to 2005 at four to five percent, as approved by the Development Budget Coordinating Committee (DBCC)– the inter-government planning body that sets the annual macro-economic targets and assumptions.

Buenaventura said the inflation target was consistent with the government’s economic growth target of 4.9 to 5.8 percent for 2004 and 5.3 to 6.3 percent for 2005 in terms of gross domestic production (GDP).

According to Buenaventura, the expected moderate increase in headline inflation reflected the impact of improved output growth and aggregate demand conditions as well as the expected cost-push impact of factors such as the volatility in oil prices.

Buenaventura said the inflation target was based on the assumption that the peso would range between 54 and 56 to the dollar.

"We opted for a wide range because we are expecting a lot of uncertainty and political noise," Buenaventura said. "At the moment, we are already paying a premium of at least two pesos just for political noise alone."

Reported by: Sol Jose Vanzi

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