Philippine Peso to Drop Another 3.5%, San Miguel's Edeza Says

By Lilian Karunungan

Oct. 30 (Bloomberg) -- The Philippine peso will fall 3.5 percent by the second quarter of 2009 as the global financial crisis deters investors from emerging-market assets and slows the economy, said Sergio Edeza, head of treasury at San Miguel Corp.

The currency, the third-worst performer this year among Asia's 10 most-active currencies outside Japan, will reach 51, the weakest since August 2006, said Edeza at the Manila-based company, the Philippines' largest food and beverage producer. That forecast is his personal view, he said.

``The currency will remain challenged,'' Edeza, who was the central bank's treasurer during the 1997 Asian financial crisis, said yesterday in an interview. ``It all depends on what happens in the U.S. If risk aversion softens, then the currency pressure will be lesser.''

The peso lost 16 percent this year as foreign investors dumped holdings of Philippine equities and local inflation accelerated to a 16-year high. Overseas investors have sold $850.9 million more Philippines equities than they bought this year, according to stock exchange data.

The currency closed at 49.20 per dollar yesterday in Manila, according to the Bankers Association of the Philippines.

Rate Cut

Non-deliverable forwards contracts yesterday showed traders are betting the peso will decline 7.6 percent to 53.25 against the U.S. currency in nine months. Forwards are agreements in which assets are bought and sold at current prices for delivery at a specified future. Non-deliverable contracts are settled in dollars.

The peso will also weaken as the central bank cuts interest rates to bolster the economy, with consumer spending driving the growth, said Edeza, who held positions as treasurer at the Bureau of Treasury and several banks after leaving the central bank.

Bangko Sentral ng Pilipinas raised its benchmark interest rate three times this year to 6 percent to quell inflation.

Private consumption contributes about two-thirds of the nation's gross domestic product. The Philippines cut its economic growth target four times this year, saying exports and remittances will falter amid a U.S. economic slowdown. The economy may expand between 4.1 percent and 5.1 percent in 2009, Economic Planning Secretary Ralph Recto said Oct. 2. The previous forecast was for growth of 4.5 percent to 5.5 percent.

``A rate cut, probably of 1 percentage point, will help the Philippines,'' Edeza said. ``The big domestic economy is going to drive demand for goods and services. If the peso depreciates, it makes local goods more competitive and therefore in these times when you want to perk up the domestic economy it's good to consume what is locally produced.''

Central Banks' Solutions

The peso probably won't fall next year to the record low of 56.46 reached in 2004 as central banks and governments globally unleash measures to soften the global credit squeeze, Edeza said.

``The effect of the solutions that have been provided by central banks should be felt already by then,'' he said. ``We will see investments flowing through countries like the Philippines and other emerging countries.''

Money sent home by Filipinos working overseas will also limit losses in the peso, he said. Remittances from Filipinos living abroad, which make up a 10th of the economy, rose 10.4 percent in August from a year earlier, compared with 25 percent growth in July, the central bank said in a statement on Oct. 15.

``In terms of our own remittances we will have a positive sort of health,'' Edeza said. ``We are assisted by that but it may not be enough to keep the currency strong.''

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