BSP sees less volatile peso this year

MANILA, Philippines—Some market players expect the peso to appreciate at an even faster pace this year, but the Bangko Sentral ng Pilipinas sees otherwise, believing that the local currency will become less volatile against the US dollar on the back of rising imports.

Although growth in remittances and foreign portfolio investments would continue to exert pressure on the peso, the BSP said, a recovery in imports expected this year should temper its appreciation.

“We see the peso trading in a more stable range in 2013. The peso may trade in a less volatile manner because we think imports will significantly increase,” BSP Assistant Governor Ma. Cyd Tuaño-Amador told reporters Friday.

Imports, especially that of raw materials, grew by an anemic pace last year due to expectation that demand for Philippine-made goods abroad would be weak due to the economic problems of the United States and the euro zone.

Imports in the first 11 months of 2012 grew year on year by a mere 1 percent to $56.4 billion, latest trade data from the National Statistics Office showed.

For this year, the government expects imports to register a 12-percent increase over that of last year.

Imports are seen to register a spike this year amid expectations of rising demand from local and foreign buyers, Amador said. Imports may also grow faster due to the favorable business sentiment which, in turn, may encourage firms to buy more imported raw materials and intermediate goods to support their expansion plans.

An increase in imports leads to a higher demand for US dollars, thereby weakening pressures on the peso.

The peso became one of the fastest appreciating currencies against the US dollar last year. This was due to the robust inflow of remittances, foreign portfolio investments, and foreign investments in the business process outsourcing sector. The slowdown in imports also helped strengthen peso.

The peso appreciated by nearly 7 percent against the US dollar in 2012 as it ended the year at 41.05:$1.

Some market players project that the peso may register an even faster rise this year, citing the likelihood of a sustained rise in remittances and a surge in foreign portfolio investments. Some say the peso may even hit a level as strong as 38 to a dollar.

The BSP said, however, that such projections do not take into account the forecast for imports to grow by a more substantial pace this year.

Since the start of 2013, the peso has appreciated by nearly one percent against the US dollar. It closed at 40.69:$1 last Friday.

The favorable sentiment on the Philippine economy was due to the significant rise in foreign portfolio inflows early in 2013. This sentiment has pushed the Philippine Stock Exchange Index to post several record highs in the first two months of the year.

The economy grew by 6.6 percent last year, beating the official target of 5 to 6 percent. The government expects the economy to again grow between 6 and 7 percent this year.