What's In Store For The Philippine Peso ?

Sometime last year, I told my dad to dump all his dollars, exchange it for peso and put it in mutual funds.This was the time when the United States dollar to Philippine Peso Exchange rate was still P44+ to a dollar.

I am not certain if my dad listened to my advice, However the exchange rate is now about P 40.00 to a dollar.

Some experts give the fearless forecast of 37 to 1 by as early as the 1st quarter of 2008. More conservative experts peg it at P 39 to a dollar by 2008 and most would agree that it would stay in the P 30 +++ level by 2009. Some give a higher than P 35 prediction while others give a lower than P 35.00 prediction.

Most likely, the Philippine Peso will keep on getting stronger in the coming months because of the these reasons:

1.) Basic economic principle of supply and demand - More supply of dollars means the the dollar becomes cheaper. In the same way the less demand there is for dollars, the cheaper it becomes. What could be the reason why the Philippines has an oversupply of U.S dollars ? The following reasons could provide a clue:

a.) Rise in Overseas Foreign workers (OFW) remittances - Out of the more than 80 million Filipinos, an estimated 8 million, have left the country to seek work overseas. The total number of Filipinos worldwide is estimated to be about 11 million. This trend is likely to continue and as this continues so will the flow of U.S dollars into the country further strengthening the Philippine Peso.

b.) Influx of more foreign capital - According to the Central Bank, foreign direct investments (FDI) from January to September 2007 aggregated to US$1.9 billion. This is higher by 22.3 percent compared to last year's US$1.6 billion (In the same period). Most Investors now see that the Philippines is good place due to the following reasons, effective Fiscal reforms implemented by the government, strong economic fundamentals, our growing business process outsourcing potential and liberalization of mining laws. Most of the foreign investments in the country went to mining, real estate and manufacturing. This is the reason why the stock market remains to be bullish, the inflation rate is low, and the GDP is high etc. This results to a good business environment for investors. More investors are expected to come in as this trend continues. As more "hot money" flows into the country, the supply of dollar continues to increase.

c.) Increase in Tourists spending - The Department of Tourism reports that Tourist arrival increased 8.6 percent from a year earlier. This translates to 2.5 million additional tourists. Tourists spend a lot of money while they are in the country. This helps increase the supply of U.S dollars in the country.

d.) Export earnings - Exports has also grown despite the appreciation of the Peso. However the growth in this sector is led by Business Process Outsourcing business and not the traditional business. The Philippines remain to be one of the favorites when it comes to Business Process outsourcing.

e.) Political stability - People are tired of political bickering, political mudslinging and engaging in activities that call for the resignation of the president. It cannot be denied that the existing administration has maintained its grip and influence creating a somewhat stable political environment.

2.) Weakness of the U.S dollar - The Philippine Peso benefited from the weakness of the U.S dollar. Because of the sub prime mortgage crises, the U.S economy has continued to deteriorate resulting to a weaker dollar. Thus giving a chance for the Philippine Peso to appreciate much even further.

The year 2007 ended with the Peso being nominated as the best performing currency in Asia. It gained about 18 % against the U.S dollar. Most likely this trend will continue. Expect a stronger peso more likely in the month or even years to come.

Article Source: Main Articles

Do you want to know more about investments ? Zigfred Diaz regularly blogs about several topics including finances and investments. If you would like to know more economic forecast that could affect investment decisions, visit his blog.

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