Peso seen breaking 40:$1

MANILA, Philippines — The peso is expected to rise further through 2012 to break the 40:$1 level and trade at 39.80 in the first quarter next year, DBS Bank said in a report.

The Singapore-based bank said in its quarterly report for April-June 2011 that it remained optimistic about the medium-term fundamentals of the peso in spite of market volatility in the first quarter.

In the 136-page report, DBS said such fundamentals were stronger than those observed before the Asian financial crisis of 1997-98.

“It is not unreasonable for the dollar-peso exchange rate to fall to 40 (by the end of the year), its low seen before the 2008 financial crisis,” the bank said.

DBS took note of “the persistent surge of foreign reserves in record highs since 2005,” settling at $63.5 billion as of January.

Data from the Bangko Sentral ng Pilipinas show that the amount rose further to $63.9 billion in February.

The bank said such reserves were higher than the reported $59.8 billion external debt stock as of the third quarter of 2010.

“The other notable improvement in the past seven years was the external debt-to-GDP (gross domestic product) ratio falling to 33 percent from 73 percent,” DBS added.

In a separate report, investment bank Barclays Capital said it was raising its end-2011 peso-dollar exchange rate forecast of 40 to 41.5.

This is due, first, to a lower forecast of the balance-of-payment surplus to $10 billion from $13.5 billion amid the rise in oil prices, which will weigh on the trade balance and lower portfolio flows.

Second, Barclays Capital said that the rising inflation—which reached 4.3 percent in February—might limit the peso’s appreciation through 2011.

The investment bank also said that while the BSP was comfortable with the peso appreciation that was broadly in line with other regional currencies, it “has a bias to be in the middle of the pack rather than an outperformer.” (report from Ronnel Domingo, Philippine Daily Inquirer)