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NEWS UPDATES 11 October 2010

Philippine peso overvalued?

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Anxieties an overvalued currency are gripping the business community in the Philippines. The peso poised to trade stronger this week.

The Philippine Exporters Confederation Inc. (Philexport) said about half of house ware exporters and almost a third of fashion accessories makers may close down if the peso continues to appreciate.

Sicat said that while housewares and fashion accessories exporters initially expected growing by up to a tenth this year, further appreciation of the peso may instead result in flat or negative growth.

Bernardo Villegas, an economist of the University of Asia and the Pacific (UA&P) said vehicle assembly in the country also has failed to flourish because of a strong peso..

At present, sales of imported vehicles outnumber those of locally assembled units, with imports comprising about 55 percent of domestic auto sales.

Villegas said the exchange rate "should be between P46 and P50:$1," adding that levels of between P42 and P40:$1 would be "not good for the economy."

Traders expect the peso to trade stronger against the US dollar this week, with occasional corrections, as remittances start flowing in.

They said the local currency would trade within the band of 43.40 to 43.75 on a daily average, and 43.50 to 43.85 on a weekly range.

In a research note, First Metro Investment Corp. (FMIC) and UA&P said that from a P46.3-to-a-dollar average for July to an average of P45.2 in August, the peso has traded within the P44:$1 level in September.

The rally of the peso has been relentless in the third quarter were it not for the intervention of the Bangko Sentral ng Pilipinas (BSP), they said.

For October, the peso was pushed further by the strong domestic financial markets, with the Philippine Stock Exchange index hitting a record high of 4,122.83 on September 29.

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