HSBC sees stronger peso at 45 to $1

MANILA, Philippines – The HongKong and Shanghai Banking Corp. (HSBC) sees a stronger peso at 45 to $1 this year as the Philippines has survived political and monetary uncertainty.

In a report, HSBC said it has turned more bullish on the local currency after overcoming two notable risk events including the presidential elections last May 9 and the implementation of the interest rate corridor (IRC) system by the Bangko Sentral ng Pilipinas (BSP).

“With the Philippine peso managing to escape these events relatively unscathed, we have turned more positive on the currency and have revised our year-end forecast for the dollar-peso to 45 from 48.5,” the bank said.

HSBC said the Philippines could attract more foreign direct investments (FDIs) amid the commitment of the government to ease restrictions to foreign investment, boost infrastructure spending, and simplify the tax system.

The country has lagged its regional peers in attracting FDIs with its share total ASEAN inflow cut by half to four percent today from eight percent in the 1980s.

Election related spending boosted the country’s GDP growth to seven percent in the second quarter from 6.8 percent in the first quarter, translating to a 6.9 percent growth in the first half.

“This suggests to us that the Philippines’ domestic demand story is more insulated from the global economic slowdown. This should help keep portfolio inflows – especially into equity market – buoyed and be a solid drive for the peso,” HSBC said.

Unlike many other Asian currencies, it added the peso is less affected by external developments, while domestic consumption is bucking the regional trend by remaining strong and supporting corporate profits.

“In a time when yields are low and uncertainty about growth is high the peso looks increasing attractively. Although foreign exchange policy could smooth some of the upward pressure on the peso, there should be some comfort with the currency being a laggard in the region this year,” he said.