Peso seen back to 41-to-$1 level by end of ’13

The peso may climb back to the 41-to-$1 level by the end of the year as its recent depreciation  is deemed as just a temporary aberration, said Union Bank of the Philippines Victor Valdepeñas.

Valdepeñas, an economist and treasury veteran, said in a chance interview with Inquirer on Friday night that the recent weakening of the local currency was due to the outflows of capital from emerging markets. This happens as the United States seems to be getting attractive again as an investment area especially for funds that have already made a lot of profit from emerging markets.

“For the Philippines, it is different and the reason is it’s fundamentally, the (foreign exchange) inflows are beyond the demand side,” Valdepeñas  said.

The banker is referring to the influx of overseas remittances to the country amounting to about $2 billion a month. In 2012, money sent home by overseas Filipino workers reached a record of $21.39 billion, up by 6.3 percent year-on-year. This rate of growth is seen to continue this year.

Valdepeñas explained that earnings from overseas Filipino workers were the country’s most stable source of income and these were not affected by financial market volatility.

“The country’s current account which has been positive for quite sometime will remain positive for a long time, for as long as there’s no reversal in terms of (deployment of) migrant workers and remittances. That will underpin the peso,” Valdepeñas  said.

“The excess current account flows will be sold to the marketplace and absorbed by the central bank, which is why the recent depreciation isn’t worrisome,” he said.

At present, Valdepeñas  said the Bangko Sentral ng Pilipinas was providing support at the spot foreign exchange market at P42.80-to-$1 level but  in the next six months, the pressure on the local currency to appreciate against the US dollar would likely escalate.

Asked about his fearless forecast for this year, Valdepeñas  said he would not be surprised if the peso would go back to the 41 levels. However, he said the BSP would not likely allow the strengthening of the peso past the psychological barrier of 40:$1.

The local currency has so far depreciated by about 5 percent since the middle of May, recently testing the 43-levels. On Friday, the peso closed at 42.81 versus Thursday’s 43.10 to a greenback.

For Valdepeñas , a stronger peso is better for the country. “You encourage a better deal for overseas Filipinos,” he said.

With the US dollar regaining momentum, Valdepeñas  said it might be true that emerging market currencies, in general, might depreciate.

“But the Philippines is unique. Our liabilities now are less than our foreign assets,” he said, noting that the country’s foreign reserves of more than $80 billion was much more than the country’s total external debt of about $60 billion.

“It’s a complete reversal of yesteryears when we didn’t have anything,” he said.

In the meantime, Valdepeñas  said the BSP’s decision to keep its key interest rates unchanged last week was a natural response to the current volatility in asset markets.

The option to further ease monetary policy through another cut in special deposit account (SDA) rates, as some were expecting, could “always be taken into the future anyway,” he said. “There is no pressure for them (BSP) to do it now. The natural thing to do when things are not as certain as it used to be is the step back and hold. I was expecting that nothing will happen.”

On equities, Valdepeñas  said local stocks were now one of the highest priced in the region.

“To be able to keep that kind of valuation our earnings growth must be very, very strong and we will see in the next few quarters if that will be sustained,” he said.