(STAR) By Des Ferriols - Market confidence boosted the peso yesterday with the local currency closing 48.505 against the dollar as the January inflation rate slipped below four percent.

The peso opened yesterday’s session at 48.60 to the dollar and appreciated to as high as 48.50 before closing slightly lower at 48.505.

The foreign exchange market has been upbeat as expected as the National Statistics Office reported that the January inflation had eased to a three-and-a-half-year low at 3.9 percent.

Dealers said the market was optimistic that the Bangko Sentral ng Pilipinas (BSP) would rethink its monetary policy settings and consider cutting its overnight borrowing and lending rates in the light of easing inflation pressures.

The stock market corrected on profit-taking yesterday but analysts expect more foreign investments to come in within the next few months both in the form of portfolio and direct investments.

Analysts said the improvements in the country’s fiscal position, supported by strong macro economic fundamentals and steady inflow of foreign exchange would fuel even more enthusiasm among foreign investors.

With more dollars coming in, including OFW remittances, the peso is expected to not only sustain its strength but possibly to continue appreciating all throughout the year.

According to some dealers, the market is awaiting the next move of the BSP which has been hinting that the economy was ripe for the full liberalization of foreign exchange policies.

BSP Governor Amando M. Tetangco Jr. said the BSP is close to wrapping up its ongoing policy review and is preparing to present the proposed reforms to the Monetary Board when it meets in February.

RP spends P700M on palay purchases By Marianne V. Go The Philippine Star 02/07/2007

The National Food Authority (NFA) paid out P700 million to rice farmers last year for the purchase of 1.4 million bags of palay.

The NFA said its palay buying activity has helped push up farmgate prices, forcing private grains traders to increase their own offer to get a bigger share of the market.

According to Agriculture Undersecretary Jesus Emmanuel M. Paras, the NFA purchases about five percent of total palay production.

The NFA buys palay from farmers at a guaranteed price of P10.50 per kilo, otherwise known as support price. This is what private traders have to contend with if they want farmers to sell to them.

As of end 2006, the NFA said, the farm gate price for palay averaged P10.72 per kilogram nationwide.

The NFA, however, loses because it is bound by its mandate to sell rice to consumers at subsidized rates unlike private traders who sell their stocks at the highest price which the market is willing to pay.

The Department of Finance (DOF), in fact, is now studying how to contain the continuing losses of the NFA.

The NFA, however, pointed out that its "subsidy" is the only thing keeping rice prices affordable to consumers and also offers a safety outlet for rice farmers who would otherwise be left to the mercy of private traders.

Chief News Editor: Sol Jose Vanzi

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