Peso seen to stay firm

The peso is expected to stay firm in the coming months amid the possibility the US Federal Reserve would delay anew its plan to raise interest rates for the first time in nearly a decade.

Dutch financial giant ING said steady streams of dollar income for the Philippine economy would keep the peso strong. Improved risk aversion among global investors is also expected to benefit emerging market currencies.

“Reduced concerns that had fueled the rout in the third quarter were discounted already by the market or soothed by expectations China would be able to engineer a soft-landing,” ING senior economist in Manila Joey Cuyegkeng said in a note to clients.

Apart from easing concerns over China’s economic trajectory, investors would also focus on more monetary accommodation from central banks in Europe and Japan.

US Fed officials also seem less convinced that interest rates should be increased before yearend, opening up the possibility of a delay to early 2016, Cuyegkeng said.

“Growth fundamentals and external payments fundamentals remain favorable even as some risks have surfaced especially for remittances. Structural inflows and stronger tourist activity are likely to keep external payments position favorable,” he said.

ING is in the process of reviewing its 2015 and 2016 forecasts for the peso. Earlier, the bank said it saw the peso ending the year at 46.80-to-$1 before weakening further to 47-to-$1 by 2016.

A stronger currency makes foreign debt payments and imported goods such as food and fuel cheaper, but leads to lower incomes for dollar-earning sectors. A weaker currency puts more money in the hands of exporters and families that receive remittances from migrants, but makes foreign debt servicing and imports more expensive.

Last Friday, the peso reached its strongest level since early August to close at 45.87-to-$1. In September, the local currency weakened to a five-year low of 47.04-to-$1 amid turbulent market conditions.

“Recent external developments have been favorable and could extend to the end of the year and in 2016 especially if the Fed guidance for normalization is extremely more modest than currently expected,” Cuyegkeng said.

Cuyegkeng said the main risk to the peso would be a signal from US Fed officials of their willingness to raise interest rates by December. Paolo G. Montecillo