This as Mike Moran, Hong Kong-based chief economist of Standard Chartered, projected the BSP to adopt monetary tightening policy within the first few months of 2006 to check on stave off inflation uptick.

"Given the improving fiscal backdrop, a credit upgrade should in the pipeline over the next eight to nine months," Moran said.

Over the weekend, BSP Governor Amando M. Tetangco Jr. announced Moody’s Investors Service may possibly upgrade from the country’s credit outlook from negative to stable because of the improving revenue profile of the government.

Officials from Moody’s are in the country to assess the country’s performance. Moran believed the international credit rating firm would give the Philippines a thumbs-up considering the political will of the government to impose a controversial structural reform measure such as the expanded value-added tax.

"It will be surprising if their assessment is not more positive that the last visit," Moran said.

To recall, Moody’s changed to negative the country’s credit outlook as well as brought down by two notches the bond rating because of the political noise.

Still, Moran stressed that politics remains a threat, particularly on peso stability.

While, Moran stressed that the Philippines "passed the worst for now," with the Charter change, foreign investors still are closely monitoring the developments in domestic politics.

On the peso, Moran likened the "performance of the Philippine peso" to a "roller coaster," this year with its value vis-à-vis the US dollar influenced by the fical performance of the government, specifically, the implementation of the controversial expanded value-added tax and the sustained inflow of dollar remittances from overseas Filipino workers (OFWs).

On the other hand, Moran forecast a 75 basis points increase in the key overnight interest rates policy of the BSP "over the next six months."

Despite pronouncements from the authorities that the overnight rates will be maintained for the remainder of the year, Moran believed otherwise.

"We expect another 75 basis points hike (in the overnight rates) over the next six months, starting with a 25 basis points hike at the 15 December meeting," Moran said.

He explained that the monetary tightening is needed to improve on the interest rates differential between the domestic and foreign assets as well as provide incremental "support" to the local currency.

A narrowing Interest rate differential is expected to drive away foreign fund managers since it, alternatively, will thin out their profits. For now, the BSP rates are at 7.5 percent for the overnight borrowing or reverse repurchase rate and 9.75 percent for the overnight lending or repurchase rate.

Moran, likewise, believed that the US Federal Reserves will sustain its monetary tightening policy, which will be adopted or followed, as well, by the regulators here.

"The BSP tightening should help to stabilize narrowing yield differentials set in motion by the improving fiscal outlook providing additional support to the Philippine peso as the Fed continues to tighten," said the bank economist.