Philippines looking to remittances to limit peso slide

MANILA: The embattled Philippi ne 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.

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 US$2.7 billion (RM11.17 billion) inflow in the month was the largest ever, central bank data showed.

“The peso may see some support due to the dollar strength seen losing momentum towards 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 yearend, 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 totalled US$28 billion last year, are the nation’s largest source of foreign exchange after exports.

“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 recent note.

They said the peso is still about 10 per cent 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.

Remittances probably rose 5.1 per cent in July from a year earlier, according to the median estimate in a Bloomberg survey of economists, ahead of data due today. Growth was 2.7 per cent in the first six months of the year.

Any relief rally in the peso could be brief as investors remain cautious over the nation’s worsening current-account deficit. The shortfall was US$3.1 billion in the first half of the year, matching the central bank’s forecast for the full year.

“The nation’s current-account deficit is unlikely to turn to a surplus anytime soon and that’s making it hard to expect an appreciation trend for the peso,” Ino said.