PESO  NEARS  50:$1

(STAR) By Des Ferriols - The peso nearly broke into the psychologically important barrier of 50 to a dollar yesterday despite month-end demand for the greenback.

At the Philippine Dealing System (PDS) yesterday, the peso gained more momentum during intraday trading, hitting a high of 51.04 before closing at 51.05 or 16 centavos higher than Monday’s close of 51.21 to the dollar.

Analysts have been expecting the peso to hit the 50 to $1 level and stay there until the end of the year, mainly buoyed by strong remittances from overseas Filipino workers.

DBS Research Group said expectations for robust yearend inflows from overseas foreign worker (OFW) remittances should continue to boost the peso.

In the first half of the year alone, OFW remittances amounted to almost $6 billion, up 15.4 percent year-on-year, and well on track to exceed the $10.7-billion inflow recorded in 2005.

"We do expect peso gains to be gradual owing to the desire of the central bank to build up foreign reserves to $25 to $30 billion in the next five years," DBS said.

Strong OFW remittances helped beef up the country’s international reserves which reached $21.27 by the end of July. At this rate, analysts expect the country’s reserves to hit $30 billion by end-2010.

"With remittances largely absorbed by the central bank’s reserves building exercises, strong gains in the peso will need to be facilitated by foreign investor inflows into Philippine assets. We remain comfortable with our forecast for peso-dollar exchange to hit 50 by end-2006," DBS said.

The Bangko Sentral ng Pilipinas (BSP) itself has expressed optimism that the peso will prove resilient against market volatility as the steady inflow of foreign investments and remittances continued to boost the country’s international reserves.

BSP Governor Amando M. Tetangco Jr. told reporters that the country’s healthy reserves assured that the peso would enjoy "relative protection" against excessive volatility.

"As far as we can see, the peso is just trading within a narrow market-determined range," Tetangco said. "Whatever rates we are seeing now reflective market sentiments and the sentiment right now recognizes that despite external shocks, our fundamentals are basically improving."

According to Tetangco, the BSP was only on the lookout for excessive fluctuations in the exchange rate that would indicate high volatility levels that might not be sustainable.

Inflation seen at 5.8% to 6.5% this month By Des Ferriols The Philippine Star 08/30/2006

The average inflation rate is expected to ease further to 5.8 percent in August as the peso continued to strengthen against the dollar and sufficient food supply eased the pressure on food prices.

The Bangko Sentral ng Pilipinas (BSP) is expecting the inflation rate to range between 5.8 percent and 6.5 percent in August, considerably lower than the 6.4-percent inflation rate recorded in July.

BSP Governor Amando M. Tetangco Jr. said the BSP’s August projection bolstered the full-year expectation of a declining inflation rate in the second semester of the year after prices surged early in the first quarter.

"Inflation is expected to be lower than the July figure due to the continued firmness of the peso and lower food prices," Tetangco said.

The inflation rate recorded in July was the lowest level in the last two years although officials have been on the look-out for the impact of surging oil prices which is expected to nudge prices of basic commodities.

Overall, the inflation rate for the first half of the year averaged at 7.1 percent, way above the BSP target of four to five percent for the whole of 2006 although well within the projected rate for the year of 6.5 to 7.3 percent.

Tetangco said prices in August appeared to support the second semester slowdown that was critical for meeting the inflation target in 2007, pegged also at four to five percent with domestic liquidity growth capped at 14 percent for the whole year.

Talks of monetary tightening have subsided but have been replaced by floating ideas that the BSP should now start considering the possibility of easing its current monetary stance, supposedly to encourage bank lending.

According to Tetangco, however, discussing that possibility was premature since the trajectory towards the four to five percent inflation target for 2007 has not been clearly established.

"It hasn’t had enough time to show a clear trajectory, we will have to see in the coming months and if we see the kind of clarity that would satisfy the monetary board then we can maybe begin discussing that," Tetangco told reporters.

The BSP’s policy rates have been held steady at 7.50 percent for overnight borrowing and 9.75 percent for overnight lending since October last year.

The BSP has repeatedly said that lowering interest rates would become relevant only when the average national inflation rate has gone down to four to five percent but easing of monetary policies could come earlier.

Tetangco’s subsequent statements suggested, however ,that monetary easing could come before inflation rate actually hits the four to five percent average next year.

"If the trend towards the target is well established and satisfactory, then we can start considering this," Tetangco said.

The BSP has been parrying speculations that it would raise its policy rates if the US Fed raises its rates again but now, banks are also calling for lower rates to encourage bank lending.

But Tetangco said that lowering the BSP’s policy rates would not solve the anemic lending activity in the banking sector.

Stocks rise as Dow gains spark bargain-hunting The Philippine Star 08/30/2006

Stocks rose slightly yesterday as Wall Street’s overnight gains inspired investors to hunt for bargains.

The 30-company Philippine Stock Exchange Index gained 4.11 points, or 0.1788 percent, to close at 2,302.69 after rising 1.1 percent Monday. The broader All Shares Index gained 3.99 points, or 0.28 percent, to 1,430.75.

"The market appears tentative although overnight gains on Wall Street seem to have provided it support," AB Capital Securities research head Jose Vistan said.

However, losses in heavyweight Philippine Long Distance Telephone Co. (PLDT) capped the rise, traders added. PLDT retreated 0.26 percent to P1,925 after Monday’s rise of 2.12 percent.

Conglomerate Ayala Corp. gained 1.16 percent to P437.50, while subsidiary Ayala Land Inc. was up 1.89 percent at P13.50. Mall operator SM Prime Holdings Inc. advanced 2.60 percent to P7.90.

Nestor Aguila, president of local brokerage firm DA Market Securities Inc., said yesterday’s tight trading range is an indication that the market remains in consolidation mode.

"Bargain hunters are there, although they are still waiting for further discounts before accumulating aggressively," Aguila said.

Gainers outnumbered losers 57 to 30, while 60 stocks were unchanged. Sectorial indicators were mixed, with industrial, holding firms and the property subindices ending higher, but the financial, mining and oil subindices falling.

Investors shied away from most blue chips and focused on speculative stocks but late buying in property developer Ayala Land Inc. pushed up the main index above the key 2,300 points level.

The broader all-shares index rose 3.99 points to 1,430.75.

The Philippine peso was at 51.178 to the dollar.

"Stocks moved sideways with no major leads on the domestic front to trade on. Investors were largely focused on speculative issues," said Rommel Macapagal of Westlink Global Equities.

Food and beverage giant San Miguel Corp.’s A-shares advanced 50 centavos to P65 but its B-shares fell 50 centavos to P71. – AP, AFP

Chief News Editor: Sol Jose Vanzi

All rights reserved