RP deficit, US concerns drag peso lower

Erik de la Cruz / Reporter

Tuesday, 21 April 2009 21:29

CONCERNS about the Philippines’ budget deficit and the health of the US financial system pulled down the peso to a three-week low against the greenback on Tuesday, dealers said.

The local currency slumped to an intraday low of 48.49—its weakest intraday value since March 31 when it fell to 48.58—before settling at 48.46, down almost 0.8 percent from Monday’s close of 48.09.

“The Philippine peso has started weakening again, but this is likely to be due to domestic concerns regarding its widening budget deficit,” said Philip Wee, currency strategist at DBS Bank.

The government has further raised the deficit ceiling this year to P199.2 billion, or 2.5 percent of the gross domestic product, from P177.2 billion as it intends to pump-prime the economy despite expectations of weak revenue. The official 2009 economic growth forecast has been cut to 3.1 percent to 4.1 percent, from the previous estimate of 3.7 percent to 4.4 percent, to account for weak exports.

Concerns about the stability of US banks, which sparked selloffs in the equities markets, also weighed down the peso, dealers said. The major US equity indexes dropped by 3 percent to 4 percent on Monday.

“Risk aversion is back after weak results from Bank of America reignited worries about the US financial system and the economy, setting off a broad-based fall on Wall Street,” said dealers at Metropolitan Bank & Trust Co. (Metrobank) in a note.

The dollar rallied as the fall in equities increased the greenback’s safe-haven appeal, dealers said. On the domestic front, they said growth and fiscal concerns added to pressure the peso downward. The budget deficit hit P67 billion in the first two months of the year, more than double in the same period last year, as the economic downturn resulted in weak revenue that prompted the government to spend more to boost economic activity.

The peso is expected to trade between 48.30 and 48.60 today, said Banco de Oro chief market strategist Jonathan Ravelas. Dealers at Union Bank of the Philippines said 48.50 is the dollar’s immediate resistance level.

Metrobank expects the peso to reach 52.50 per dollar by the end of 2009, given shrinking inflows as exports contract and remittances of Filipinos abroad post flat or negative growth.