VAT  HIKE  ON  FEB. 1 BOOSTS  PESO VS DOLLAR

MANILA, January 27, 2006
 (BULLETIN) The peso closed higher against the US dollar yesterday in anticipation of a sales tax increase that many believe will lead to an upgrade in the country’s credit ratings, traders said.

The dollar closed at R52.385 on the Philippine Dealing System, down from R52.440 Thursday. It moved in a range of P52.370-P52.550 to the dollar, and averaged R52.435 compared with the previous session’s average of P52.431.

Finance Secretary Margarito Teves said earlier this week that the government could implement a planned increase in the value-added tax on Feb. 1. His statement has helped the peso, dealers said.

Under current legislation, President Gloria Arroyo can hike the VAT rate to 12 percent this year, from the present 10 percent, if VAT collection for 2005 exceeded 2.8 percent of the GDP (gross domestic product) or if the budget deficit exceeded 1.5 percent of GDP.

The 2005 preliminary GDP data will be officially released on Monday, although the Department of Finance expects to receive the data from the National Economic and Development Authority late Friday.

The VAT rate increase — which is part of a package of reforms aimed at balancing the budget over the next few years — is believed to be among key factors that could prompt rating agencies to upgrade the country’s BB-/B1/BB credit ratings, or at least to change the outlook on these ratings to positive from negative.

Aside from favorable fundamental factors, the peso is also being supported by thin corporate demand for dollars, dealers said. (Dow Jones)

Late Thursday, Bangko Sentral ng Pilipinas Governor Amando Tetangco said the peso may retain its upward bias, although the local currency may succumb to a correction from time to time.

"The forecast for the balance of payments is a surplus for the year, and that should be positive for the peso," he told reporters, adding that the exchange rate should be "broadly stable" near term. (Dow Jones) Printer Friendly Version


Chief News Editor: Sol Jose Vanzi

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