The Philippine peso, Asia's worst-performing currency this year, will climb 4 percent by October as interest rates rise and confidence builds after May elections have passed, the treasury chief at San Miguel Corp was quoted as saying by Bloomberg Monday. The currency will appreciate to 45 per dollar, its strongest level since August 2008, by the end of the third quarter, Sergio Edeza, head of treasury at the Philippines' largest food and beverage producer, said in an interview on Jan. 29, expressing his personal view. The central bank will have to start increasing the overnight borrowing rate, currently a record-low 4 percent, to head off inflation, he said. “There's usually a period of euphoria that follows the election of a new president,” said Edeza, who was a treasurer at the central bank during the 1997-1998 Asian financial crisis and for the government from February 2001 to February 2004. “Inflation pressures are building and the election money that's coming into the system may be inflationary.” The Philippines will elect a successor to President Gloria Arroyo on May 10 and for the first time will use an automated system to count votes, speeding up the decision process. Senator Benigno Aquino, son of late President Corazon Aquino, is leading polls followed by Senator Manuel Villar. Arroyo on Jan. 22 said she trusts the Commission on Elections will be able to cope with the new system. “It can fail in some areas” but not in most, she said. “The leading candidates are acceptable to the public and to the market,” Edeza said. “If anything, it's the process that may cause some uncertainty.” The peso slumped last week as concern that policy tightening in China will slow a global recovery and mounting deficit woes among European nations spurred investors to ditch emerging-market assets. The currency dropped to 46.86 per dollar on Jan. 28, the weakest level since Dec. 1, according to Tullett Prebon Plc. It was down 0.5 percent as of noon in Manila today and has lost more than 1 percent so far this year. The Philippines' main stock index extended losses today and reached the lowest level in three months. The gauge declined 2.4 percent, the biggest drop since Aug. 17. The nation's one-year cost of borrowing climbed to a seven-month high at a bill sale on Jan. 25, as investors demanded higher returns on concern about a record budget deficit. Non-deliverable forwards contracts show traders are betting the peso will decline 2.3 percent to 47.98 in nine months. Forwards are agreements in which assets are bought and sold at current prices for delivery at a future specified time and date. Non-deliverable contracts are settled in dollars. “There is no reason for the peso to appreciate further for now,” said Jonathan Ravelas, chief market strategist at Banco de Oro Unibank Inc. in Manila. “We're entering an election period and there is uncertainty in the process,” Ravelas said. The peso will recover once the central bank starts increasing the benchmark rate by the end of the second quarter, he said. The median estimate of 12 analysts surveyed by Bloomberg is also for the peso to trade at 45 by the end of the third quarter. A separate survey showed the central bank will increase borrowing costs by a quarter-percentage point by the end of June. Bangko Sentral ng Pilipinas kept the overnight borrowing rate unchanged on Jan. 28 and lifted the so-called rediscounting rate that it charges lenders to borrow money by half a point to 4 percent. Raising interest rates will be a final step in exiting a stimulus program, Deputy Governor Diwa Guinigundo said on Jan. 25. A government report last week showed fourth-quarter gross domestic product increased 1.8 percent from a year earlier, the fastest pace in a year. The central bank raised its forecast for consumer price gains this year to 4.7 percent from 4 percent, Assistant Governor Cyd Amador said on Jan. 28. Data on Feb. 5 may show costs in the economy rose 4.9 percent last month, the most since March 2009. Governor Amando Tetangco last week said January inflation may have reached a 10-month high of 5.4 percent. The local currency will strengthen as the central bank tightens monetary policy, Edeza said. For now, authorities will “have to do a tight wire act of” helping boost growth while keeping a lid on inflation, he said.
