Peso seen weakening to 47-to-$1 by December
Families that earn dollars, which in the Philippines means the millions of households that pay for expenses using remittances from migrants, are expected to have more money by the holiday season.
By the end of 2015, the peso is expected to trade at 47-to-$1, and stay at this level until 2017, a report on Tuesday showed, helping provide support for economic growth.
This will be the lowest level in five years.
This follows the recent decline of currencies in the region as a result of financial tremors overseas, most recently from China’s decision to devalue the yuan.
The US Federal Reserve is also expected to hike interest rates as early as this month in what would be the first tightening of policy settings in nearly a decade.
“The market turmoil sent foreign investors scrambling for the exit,” Capital Economics, an American think tank, said, commenting on the recent drop in emerging market currencies.
In a report to clients, Capital Economics said the effects of what is now known as “Black Monday”—the day China’s central bank allowed the tightly controlled yuan to depreciate—led to massive outflows from emerging markets.
About $100 billion in cash left Asian equity markets in August, the highest for any month since 2013’s so-called “Taper Tantrum.”
“All of the economies that publish data have recorded net outflows,” the firm said.
Foreign currency-earning sectors of the economy gain from a weaker currency, as this puts more money in the hands of people in peso terms for every dollar they make. Families of overseas Filipino workers (OFW), who are expected to send a total of $25 billion in remittances in 2015, are among the top beneficiaries from a weak peso.
Companies in the business process outsourcing (BPO) sector, which employs over a million Filipinos, as well as exporters, are expected to receive a windfall from the weak peso.
The peso, for its part, dropped to a five-year low of 46.815-to-$1 on Aug. 24 as investors reacted to China’s move.
Meanwhile, the local stock index on the same day erased all gains since the start of the year but has recovered since.
The local currency’s depreciation, however, was modest compared to the value lost by its regional counterparts. The Thai baht, for instance, was down 8.01 percent, Singapore’s dollar by 6.23 percent, and Malaysia’s ringgit by 17.57 percent.
At the start of this week, the peso closed stronger at 46.685: $1 from 46.735: $1 last Friday.
The peso traded weaker as it reached an intraday low of 46.78: $1 after opening at 46.75: $1 before rallying to a high of 46.66: $1.
Trading volume reached $503.90 million from $676.60 million last Friday.
