(STAR) By Des Ferriols - The Bangko Sentral ng Pilipinas (BSP) expects the peso to sustain its strength for the rest of 2007 and domestic interest rates to “remain relatively low and stable” this year and in 2008.

The peso has gained 8.9 percent so far this year. At yesterday’s trading at the Philippine Dealing System (PDS), the peso weakened at 45.140 from Tuesday’s close of 44.915 to a dollar. Total transactions amounted to $575.28 million on an average rate of 44.999 to $1.

“The peso is expected to maintain its strength for the rest of the year despite the risks posed by volatile oil prices, the unwinding of global imbalances, and volatility in the financial markets,” the BSP said.

BSP Governor Amando M. Tetangco Jr. earlier said the monetary authority was concerned about inflation pressures coming from high oil prices and faster domestic liquidity growth due to rising capital inflows.

Tetangco said the pace of peso appreciation was cause for some concern but since the BSP does not target a particular exchange rate, it could only step in to make sure exchange rate movements were not too steep in either direction.

“I’ll reiterate that a strong peso is not the BSP’s policy,” Tetangco told exporters yesterday. “Our policy has always been and will continue to be for a market determined exchange rate, with occasional scope for official action on our part to smoothen excessive volatility.”

“We do this whether the rate is going up or going down,” he added.

The BSP is set to review its interest rate policy today. If the BSP does not cut rates, as some market players expect, the peso may gain further.

In July, the central bank lowered its key overnight borrowing rate by 150 basis points to six percent and the lending rate by 175 basis points to eight percent — the first cut in four years.

It also removed a tiered scheme in which it paid less for higher amounts of overnight deposits. The twin policy move was viewed by most analysts as a slight policy tightening.

Credit markets have settled a bit after a global credit squeeze in the last two months resulting from US subprime mortgage woes, but market players are not about to declare the turmoil over.

“The peso is expected to weather these external shocks as the country’s sound macroeconomic fundamentals — particularly the country’s resilient economic growth and benign inflation — will continue to support the peso,” the central bank document said.

Sustained high remittance inflows from Filipino workers overseas, portfolio and foreign direct investments (FDIs), and export receipts will support a strong peso. “Market interest rates are likely to remain relatively low and stable in 2007 to 2008 given the prospect of continued strong inflows and fiscal consolidation,” the BSP said.

“Risk factors that could drive up domestic interest rates in the near term include sustained inflationary pressures and higher foreign interest rates,” it added.

Strong peso hurts IMI net income – exec By Ma. Elisa P. Osorio Thursday, October 4, 2007 Ayala-led electronics firm Integrated Microelectronics Inc. (IMI) said the continued strengthening of the peso against the dollar is hurting the company’s performance.

“We are on track to meet our revenues but the net income is being hurt,” Arthur Tan, president and CEO of IMI said in a press conference at the sidelines of the 6th Management Association of the Philippines (MAP) CEO Conference held at the Makati Shangri-La yesterday.

According to Tan, the strong peso has forced exporters like them to be more realistic in their approach to manage their expenses. As such, he said income growth will not be double digit this year.

However, in terms of total revenues, Tan said they are on track to meet their 10-percent to 12-percent growth target. For the year, IMI expects to post a revenue of over $400 million. For next year, IMI expects to post a revenue of $500 million.

For the entire electronics industry, Tan said the market is there and it continues to grow. The problem of companies is managing their costs given the currency concerns.

“If this (peso appreciation against the dollar) continues, this will be hurtful for us,” Tan said.

When asked what the ideal peso dollar exchange rate should be, Tan said that as an exporter a P50 to a dollar rate is better as it translates to bigger margins. “A P50 (exchange rate) is a nice level,” he said.

Despite the continued appreciation of the peso against the dollar, the semiconductor industry remains strong. Semiconductors are the country’s biggest export product, accounting for 60 percent of the country’s dollar earnings with total sales reaching $29 billion last year.

For the year, Tan said the industry is looking at a 10-percent growth or $32 billion in total export sales.

Tan said IMI plans to expand its presence in the country next year. However, he refused to give details of the expansion plan.

Aside from the Philippines, Tan likewise revealed the company’s vision to set up in another location in Asia. When pressed for details, he only said the investment will not be in China.

Meanwhile, Tan said the company has not abandoned its plan to list by introduction in the local bourse. Originally scheduled for the year, Tan said they will re-visit the idea.

He said the company’s vision to list by introduction is a tool to ready the company in case they want to accept any offer of a possible strategic partner. Although he admitted that there are on-going talks, he said there are no concrete plans as of the moment.

Chief News Editor: Sol Jose Vanzi

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