Embattled Philippine peso looks to remittances to restrain slide
The embattled Philippine peso needs a break and it may soon get one.
More than 10 million overseas Filipinos are preparing to send record amounts of money home for the Christmas and New Year holidays — a period when remittances pick up — with analysts from MUFG Bank Ltd. and Standard Chartered Plc saying those funds will help ease pressure on the currency, according to Bloomberg.
The peso, which this month sank to a 2005-low of 54.14 per dollar, strengthened in the fourth quarter last year and in every December in the past four years. Since 2009, the highest monthly remittances value was in every December and last year’s $2.7 billion inflow in the month was the largest ever, according to central bank data.
“The peso may see some support due to the dollar strength seen losing momentum toward the year-end and a seasonal pickup in remittances,” said Teppei Ino, an analyst at MUFG Bank in Singapore. The bank forecast the currency to trade at 53.75 per dollar by the end of the year, compared with the Friday close of 53.97.
The peso has been caught in the maelstrom engulfing emerging-market assets with the currency among the biggest losers in Asia this year, dropping more than seven percent. Remittances, which totaled $28 billion last year, are the nation’s largest source of foreign exchange after exports.
“Given the bearish emerging-markets environment and near-term external risks around trade tariffs, we are neutral on the peso, but remain relatively optimistic on the currency’s prospects in coming months,” Goldman Sachs Group Inc. analysts Jonathan Sequeira, Danny Suwanapruti and Andrew Tilton said in a Sept. 10 note.
They said the peso is still about 10 percent undervalued relative to its fair value of 49 per dollar, according to the bank’s GSDEER model, which takes productivity and terms of trade differentials into account.
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