The Philippines central bank said on Sunday it had revised its average exchange rate forecast on the peso to between 54 and 55 to the dollar next year from its earlier projection of between 55 and 57.
It said the revision took into account the improvement in the government's fiscal performance.
Central bank Deputy Governor Diwa Guinigundo told reporters that the recent gains in the peso, which the government of President Gloria Macapagal Arroyo attributed to the imposition of a broader value added tax (VAT) this month, would still be reflected next year.
In the most crucial of several fiscal reforms, the government imposed the broader sales tax or VAT this month, ending exemptions on fuel, power and a wide variety of other items.
It said it would raise further the expanded VAT to 12 percent from 10 percent on February 1 as part of efforts to cut its budget deficit and borrowing costs.
The implementation of the broader VAT, expectations of a hike in the rate and below-target budget deficit numbers have cheered investors, helping the peso to hit a six-month high of 54.30 per dollar on Thursday.
The central bank said it also expected the average inflation next year to be below 8.5 percent because the peso was seen to be stronger.
It forecasts average inflation next year at 8 to 8.5 percent from 7.9 percent this year.
Guinigundo said a stronger peso would ease the inflationary pressure to be created by the increase in the VAT rate next year since the cost of imported goods like oil would be cheaper.
The Philippine government - Asia's biggest issuer of sovereign debt after Japan - said last week that it had a fiscal shortfall of 115.5 billion pesos in the first 10 months of the year, lower than the programmed deficit of 156 billion pesos for the period.
With the latest data, the Philippine government - Asia's biggest issuer of sovereign debt after Japan - remains on track to beat its full-year budget deficit target of 180 billion pesos, or 3.4 percent of gross domestic product.
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