June 24 (Bloomberg) -- The Philippine peso may slide 14 percent against the dollar to a three-year low by June 2009 as the nation's trade deficit widens and foreign investors shun local assets, according to HSBC Holdings Plc.

The local currency may drop to 52 a dollar, the lowest level since July 2006, HSBC's Hong Kong-based currency strategist Perry Kojodjojo said, cutting his earlier forecast of 42.80 by the end of the second quarter next year.

The peso is the second-worst performer this quarter among the 10 most-active Asian currencies excluding the yen as food and energy prices caused inflation to accelerate in a nation that is the world's biggest rice importer. Oil's advance to a record caused the trade deficit to widen to $928 million in March from $79 million a year earlier.

The peso's slump will be ``driven by further trade balance deterioration, foreign investors continuing to divest'' and locals returning to a preference for holding dollars, Kojodjojo wrote in a research report dated yesterday. He confirmed the contents of the report in an interview today.

The peso, which lost 7.5 percent this year, traded at 44.64 per dollar as of 12:50 p.m. in Manila, according to Tullett Prebon Plc.

New Dollar Debt

The budget deficit, excluding proceeds from the sale of government assets, may widen to 1.4 percent of gross domestic product or 110 billion pesos ($2.5 billion) this year and next, HSBC said. The Philippines last month abandoned its plan to end a decade of deficits in 2008 as it boosts spending to subsidize soaring rice and energy costs.

That may prompt the government to issue $1 billion in new dollar-denominated debt by the third quarter to prevent local interest rates from climbing higher, the London-based bank said.

The trade deficit this year will widen to $13.3 billion, the bank forecast. Overseas investors sold more Philippine shares than they bought every day this month except four.

Record oil and rice prices pushed annualized inflation to a nine-year high of 9.6 percent in May, pushing the central bank earlier this month to raise the benchmark interest rate for the first time since October 2005 to 5.25 percent.

``The deterioration in real interest-rate carry is now a concern for investors and exporters,'' Kojodjojo said. ``With the macro environment deteriorating, domestic investors are starting to accumulate foreign currency.''

To contact the reporter on this story: Lilian Karunungan in Singapore at at lkarunungan@bloomberg.net.

Last Updated: June 24, 2008 01:26 EDT