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Singapore: The Philippine central bank's hefty rate rise and its hawkish stance will bolster the ailing peso in the short term, but more tightening may hurt the economy and undermine the currency in the longer run, analysts said.
Also, concerns about a fallout from lofty global oil and food prices on the economy may not recede quickly though the market expects further interest rate rises to help restrain prices.
Some analysts raised their outlook on the peso following the central bank's aggressive 50-basis-point rate hike on Thursday and hints of further tightening, but most have maintained their forecasts on the currency.
Analysts at UBS said they expected the central bank to raise rates by a total 200 basis points in the coming months to fight inflation, which hit a 14-year high of 11.4 per cent in June.
That included the latest rate rise of 50 basis points and an earlier increase of 25 basis points in June.
Consequently, UBS has raised its one-month and three-month peso forecasts to 44.50 per dollar each - little changed from the current level, analysts said.
"Definitely, the 50-basis-point rate hike gives a more positive tone to the peso in the near term," said Callum Henderson, chief currency strategist at Standard Chartered Bank.
"But over the longer term, the more they tighten now, the greater the chance of further growth deceleration and further peso weakness in the first half of 2009," he said.
Standard Charted Bank has raised its peso forecast to 44.75 per dollar by the end of September from 45.50 and raised its end-2008 outlook to 45 from 46, analysts at the bank said in a note.
The peso, among Asia's worst performers this year, jumped one per cent to a three-week high of 44.44 per dollar in onshore trade on Thursday, buoyed by the rate rise and falling oil prices.
It has lost 7.3 per cent against the dollar so far this year, after it gained 19 per cent as the region's top performer in 2007.
The peso rose as high high as 44.41 per dollar in one-month offshore non-deliverable forwards, a one-month high, and hit 44.65 per dollar in three-month NDFs, its strongest level since early June.
Expansion uncertain
The Philippine economy expanded a robust 7.2 per cent last year, but a global economic slowdown and soaring costs have cast a pall over this year's prospects.
A poll this month forecast annual economic growth to slow to 5.1 per cent this year and ease to five per cent in 2009.
The market had been dumping the peso in recent weeks as the currency is seen heavily exposed to high oil prices, prompting the central bank to intervene to prop it up.
The Philippines imports nearly all of its crude oil needs and is the world's biggest rice importer. Its trade deficit this year is set to expand by a third to about $11 billion, the highest in at least nine years.
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