HSBC's fearless forecast: P47.50 to $1

SAYS SUSTAINED FISCAL DISCIPLINE TO AID PESO
Posted: 3:43 PM | Feb. 19, 2006
Michelle V. Remo, Inquirer

Published on Page B1 of the February 20, 2006 issue of the Philippine Daily Inquirer

HONG KONG Shanghai Banking Corp. (HSBC) said the peso could appreciate to below 50 to a dollar and even get a credit-rating upgrade before the end of the year if the government's positive fiscal performance in 2005 would be sustained.

Arnulfo Veloso, HSBC treasurer and head of global markets, said in an economic forum last week that the peso could hit 49.50 against the greenback toward June, and further strengthen to 47.50 in the fourth quarter if the government's revenue targets would be hit.

"Markets may price in a credit upgrade should fiscal numbers improve and should we have a stable political landscape," Veloso said during last Friday's Economic Review and Outlook for 2006 organized by the Management Association of the Philippines (MAP).

He said oil prices were not expected to be as volatile as last year because of the projected slowdown in the growth of the world economy that would dampen demand. The Philippines, which imports most of its oil requirements, is therefore not likely to experience pressures on its currency given the softening oil prices.

Last year, the Philippine government surprised many by posting a budget deficit of only P146.5 billion, way below the official target of P180 billion set for 2005.

The lower-than-programmed deficit was due to tightened spending and higher revenues collected from state-owned firms and investments of the Bureau of the Treasury in dollar-denominated sovereign bonds.

But Veloso said the positive fiscal performance last year should be sustained if the government wanted to finally get the elusive upgrade on the country's credit ratings and for the peso to strengthen and breach the 50-to-a-dollar mark.

If fiscal numbers would not be as good as expected, then the peso could stay within the 53 level, he said.

The national government's budget deficit for January is expected to be announced anytime this week.

National Treasurer Omar Cruz earlier expressed optimism that the target of reducing the deficit to P124.9 billion for the full year was not difficult to accomplish. He cited the decline in interest rates as a factor, explaining that this reduces the cost of the government's borrowings.

For the first quarter, while it is yet to be seen whether the fiscal targets for the full year would be attained, Veloso said the peso would range between 51.75 to 52.75 to the dollar.

Veloso added that interest rates were expected to be stable this year, with the Bangko Sentral ng Pilipinas seen keeping the benchmark rates at 7.5 percent given the high level of liquidity in the system.