Philippine peso expected to depreciate to 45 to a dollar by yearend

Manila (Philippine Daily Inquirer/ANN) - The peso may not always maintain a strong stance, as seen in recent weeks, and is expected to depreciate in the coming months, eventually trading at 45 against the US dollar by yearend, according to analysts.

Based on the latest projections of DBS Group and the partnership of First Metro Investment Corp. and the University of Asia and the Pacific, the peso is expected to return to the range of 43 against the greenback mainly due to domestic development problems, as well as lingering uncertainties abroad.

DBS revised its forecast for the peso, which it said would average at 45:$1 in the fourth quarter this year from the previous 42.50:$1.

The financial service provider based in Singapore also said that the local currency would further weaken in the third quarter when it would average at 45.50 against the dollar.

¿The peso¿s stability is dependent on pushing more reforms to sustain growth (even if) it has been stable since early 2011," DBS said, expecting the exchange rate to fluctuate within the 42-44 range.

¿The peso¿s resilience throughout the eurozone debt crisis was mainly due to the re-acceleration in real GDP growth to 6.4 per cent year on year in the first quarter of 2012," from less than 5 per cent of the previous year, the group added.

But despite these positive developments, the Philippines still needs ¿to address several structural challenges," particularly because growth is still too dependent on government spending, DBS said.

At the same time, FMIC and UA&P expect the local currency to weaken to an average of 43.27 in June, 43.453 in July and 43.34 in August, from the current 43:$1.

¿With deep uncertainties as to the impact of Greece exiting from, or remaining in the eurozone, the dollar will remain as a major safe haven," FMIC and UA&P said. ¿The peso will not be spared from this, and so the exchange rate should [depreciate] until the third quarter."

Last week, FMIC president Roberto Juanchito Dispo was quoted as saying that the peso could hit an average of 42 against the dollar this year because the recent drop in global oil prices would reduce the country¿s demand for dollars.

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