Merrill Lynch sees P42:$1 in March --PDI

Merrill Lynch sees P42:$1 in March


By Doris Dumlao

Philippine Daily Inquirer

First Posted 02:57:00 02/23/2008



Merrill Lynch sees P42:$1 in March


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MANILA, Philippines -- American investment banking giant Merrill Lynch expects the peso to pull back to 42.25 to the dollar in March but firm up at about 40 to the greenback by yearend.

In a forecast on global currencies dated Feb. 20, Merrill Lynch said it did not expect the peso, Asia’s best performer last year when it rose nearly 19 percent against the greenback, to rise past 40 to the dollar over the next two years.

For 2009, Merrill Lynch sees the peso firming up at 40 to the dollar in the first quarter and dipping to 41 in the second and third quarters before ending that year at 42 to the greenback.

Merrill Lynch said Asia’s emerging markets remained supported by strong economic fundamentals.

However, it noted that “markets and central banks appear wary of the decoupling theory,” which means that the dynamic region may still be vulnerable to some shocks arising from a slowdown in the US and other industrialized countries.

The peso is trading at eight-year highs but local currency dealers say political volatility has limited its upside potential.

Merrill Lynch forecast that the peso, after falling to 42.25 to the dollar, would rebound to 41.50 by June and 40.50 by September before ending the year at 40 to the greenback.

Its report also noted that local debt markets (LDM) in emerging economies had gained in popularity over the years. “More foreign investor flows have sought LDM exposure, either hedged or unhedged,” it said.

Merrill Lynch has expanded its coverage of emerging markets, adding eight more to the existing 11 countries, including recently launched government bond indices for the Philippines, Brazil and Indonesia.

Elsewhere in the Asia-Pacific region, Merrill Lynch said external and specific local developments would affect currency prospects.

It said Malaysia’s confirmation that there would be an election in March would be good for the ringgit, which it expects to rise from 3.20 to the dollar in March to 3.00 by yearend and 3.10 in 2009. It said the incumbent administration in Malaysia was expected to win comfortably and cut subsidies, noting that the prime minister was focused on making sure fiscal funds were freed up to get the planned projects up and running.

Merrill Lynch said the view on the Indonesian rupiah was positive but it might turn slightly cautious if former banker Agus were chosen as central bank chief. “The market sees him as a more able administrator than for his understanding of macro and monetary policy,” it said.

The investment bank forecast the rupiah to rally from the 9,100 levels to 8,800 to the dollar by yearend but returning to 9,000 by end-2009.

Merrill Lynch said the Thai baht might consolidate since the move to revoke the capital controls has been delayed to March or April. It forecast the baht to end 2008 at 32.25 to the dollar and falling to 33.50 at end-2009.

“The government’s growth preferences are evident, given that they are asking the Bank of Thailand to use monetary policy to stimulate the economy,” it said. “The BoT is expected to ease rates, though not at this policy meeting (Feb. 27), as growth remains strong and inflation high.” Edited by INQUIRER.net



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