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The peso is expected to rebound in the coming days as remittances from migrant workers increase and certain foreign loans enter the country, countering the volatility caused by the US Federal Reserve’s unexpected taper announcement last week.
Governor Amando M. Tetangco Jr. of the Bangko Sentral ng Pilipinas (BSP) stressed that the peso’s current weakness was caused by factors beyond local policymakers’ control.
“The market is still reacting to the Fed tapering and the peso’s moving together with other currencies in the region,” Tetangco told reporters. “It’s really the volatility that can be expected in the short term (after the Fed move). This is a reaction to uncertainty.”
On Friday, the peso fell to its lowest since the first week of September this year following the Fed’s surprise announcement that it would scale back its monetary stimulus starting next month.
The peso closed at a three-month low of 44.50: $1, slightly lower than the previous day’s 44.435:$1 close. The currency lost 35 centavos week on week.
The Fed on Thursday announced that it would cut its monthly asset purchases, currently at $85 billion, by $10 billion starting January amid signs that America’s economic recovery was gaining traction. US unemployment fell to a five-year low in November and the world’s largest economy grew by a better-than-expected 3.6 percent in the third quarter.
Tetangco said that as the year comes to a close, remittances from overseas Filipino workers (OFWs) and dollars from foreign loans entering the financial system should provide strength to the peso.
“Banks are expecting that the peso will regain some of its lost value toward the end of the year due to the expected inflows in December,” the central bank chief said.
The BSP on Friday said it expected remittances to grow to a record high $23.6 billion in 2014, matching the projected growth rate for this year.
Latest data from the BSP showed remittances from OFWs grew 7 percent year-on-year to $2.06 billion in October, the highest in any single month in history. This brought the 10-month total to $18.54 billion or 6 percent up from last year, also a record for any comparable period.
Remittances from the country’s 10 million OFWs currently contribute 10 percent of gross domestic product (GDP). It is considered a key driver of domestic consumption that, in turn, makes up about 70 percent of GDP.
The inflows are also the country’s biggest source of foreign exchange, helping keep the peso strong or at least at par in terms of movement with its regional peers amid an uncertain global economic environment.
Tetangco added that the Philippine economy’s fundamentals remained sound relative to the rest of the region, which should help the country retain its attractiveness to foreign investors.
Apart from having Southeast Asia’s fastest-growing economy, the Philippines also boasts of a robust surplus of income from abroad, coming mainly from remittances as well as from the business process outsourcing (BPO) sector and tourism industries.