Peso seen gaining strength on strong data
MANILA, Philippines—The peso is expected to strengthen further in the coming weeks as strong economic data lift sentiment over the strength of the Philippine economy.
Dutch financial giant ING said investors should look forward to the scheduled release next week of data on remittances for December of last year.
The data together with the latest report on the country’s exports sector, which exceeded growth estimates at the end of last year, should outshine news on the drop of the central bank’s dollar reserves last January.
“(The peso) is likely to show some modest strength despite the large month-on-month drop in foreign exchange reserves for January,” said Joey Cuyegkeng, ING’s economist in Manila.
Data released on Tuesday showed the country’s merchandise exports rose by 16 percent in December as the recovering world economy drove strong demand for electronics. The performance for December pushed year-to-date expansion in exports to 3.6 percent.
The growth in December was better than ING’s projection of an increase in the “low-teens” range.
The central bank also expects data next week on remittances from migrant workers for December to show that money sent home by overseas Filipino workers likely grew by at least 5 percent to a record high of $22.5 billion in 2013.
Another 5-percent growth is expected for 2014. Remittances are the largest source of foreign exchange for the Philippine economy, supporting the strength of the peso despite volatile investment flows. “Resilient remittances should help support sentiment for peso,” Cuyegkeng said.
“Sustained gains in these two indicators would ease concerns over the $4.3 billion month-on-month drop in reserves for January,” he said.
Cuyegkeng noted that the drop in reserves was due to the drop in the value of BSP’s foreign investments as the emerging markets turmoil hit prices of investments while net outflows in January required some amount of dollar liquidity.
“(The country’s) reserves remain excessive by as much as $48 billion, if we assume that at 6-months merchandise import cover is required. The January reserves cover more than 15 months of merchandise imports,” he said.
