Philippine Peso to Rise 6% by Dec. 31, SM Investment's Sio Says

By Lilian Karunungan

July 21 (Bloomberg) -- The Philippine peso may rise 6 percent by year-end as overseas workers send more money home and the central bank raises interest rates, said Jose Sio, chief financial officer at the holding company of billionaire Henry Sy.

The currency will climb as high as 42 per dollar by Dec. 31, said Sio at SM Investments Corp., which owns the Philippines' largest shopping mall operator and its second-biggest local bank. He said that was his own personal forecast. The bank has branches in malls handling some of the $1.4 billion in monthly remittances to the nation from workers abroad.

``There will be more dollars coming in from overseas workers,'' which will boost the peso, Sio said in an interview from Manila. The company will keep building new shopping malls, which include branches of Banco de Oro Unibank Inc., he said.

Remittances from Filipinos working overseas, which account for 10 percent of the economy, increased 15.6 percent in May from a year ago to $1.43 billion. SM's profit grew 13 percent in the first quarter as these inflows, which usually peak in December, helped bolster sales at the company's malls.

The peso lost 7.9 percent against the dollar in the past six months, the worst-performer among the 10 most-active Asian currencies outside of Japan after the Indian rupee, as inflation accelerated to a 14-year high in June. The central bank last week increased its 2008 inflation estimate to a range of 9 percent to 11 percent, which has deterred foreign investors from buying the nation's assets

Remittances

Sio's forecast is more bullish than the median estimate for the currency to reach 44.50 by the fourth quarter, based on 22 economists surveyed by Bloomberg. Only four analysts have a more optimistic forecast. The peso was at 44.37 as of 9:59 a.m. in Manila, according to the Bankers Association of the Philippines.

SM Investment raised $350 million two weeks ago for expansion and general expenses by selling five-year dollar bonds at a fixed rate of 6.75 percent. The company is controlled by Sy, the country's second-richest man according to Forbes magazine.

The peso will also rebound as the U.S. currency weakens, said Sio. The U.S. Dollar Index on ICE Futures in New York, which tracks the greenback against the currencies of six U.S. trading partners, has declined 6 percent this year on concern credit-market losses will deepen from the slump in the housing mortgage market. It fell 1.2 percent in the past month.

Philippine policy makers last week increased the benchmark interest rate by more than most economists forecast to quell inflation. Bangko Sentral ng Pilipinas boosted the rate it pays banks for overnight deposits by the most since 2000 to 5.75 percent on July 17. The rate is 3.75 percentage points higher than that of the U.S., the most since 2005.

``There will be more encouragement to invest in pesos,'' Sio said. The central bank ``bit the bullet with a 50-basis- point increase, instead of a creeping'' gradual rate rise. A basis point is 0.01 percentage point.

Inflation

The peso may also gain on prospects sales by overseas investors of local securities will taper off, Sio said. There's been a net outflow of $411 million in foreign portfolio investments this year through June 27, the Philippine central bank said last week. The Philippine Stock Exchange Index has fallen 34 percent this year.

``The majority of them have already liquidated their investments,'' said Sio, referring to overseas investors. ``Demand for dollars will be reduced.''

To contact the reporter on this story: Lilian Karunungan in Singapore at at lkarunungan@bloomberg.net