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Peso seen gaining to 47:$1

/ 05:18 AM September 21, 2020

The Philippine peso stands to gain from a slump in imports wrought by a COVID-19-induced recession, London-based Capital Economics said.

“The Philippine peso has been the best performing currency in emerging Asia so far this year and is now at its highest level against the US dollar since late 2016. We expect the peso to strengthen further over the coming months,” Capital Economics senior Asia economist Gareth Leather and Asia economist Alex Holmes said in a Sept. 18 report titled “Philippines peso will sustain outperformance.”

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Last week, Finance Secretary Carlos G. Dominguez III noted that the peso appreciated by 4.41 percent against the US dollar as of Sept. 14. The peso closed at a stronger 48.395:$1 last Friday.

Capital Economics projected the peso to further strengthen to 47:$1 by year’s end, reversing its earlier forecast of the domestic currency weakening to 50 against the greenback.

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“The main factor behind the peso’s outperformance has been an improvement in the country’s external position. This has two drivers. The first is a sharp narrowing of the trade deficit on the back of a collapse in imports,” Capital Economics noted.

The latest government data showed the value of imported goods that entered the country from January to July fell 28.1 percent to $46.6 billion from $64.9 billion during the first seven months of last year. The government had projected goods imports to fall by 18 percent this year to $81.9 billion from $99.8 billion in 2019.

“The fall in imports has primarily been due to a slump in the domestic economy. Gross domestic product (GDP) contracted by 16.5 percent year-on-year in the second quarter — one of the biggest drops in the region. The recovery is also proving one of the slowest,” Capital Economics said.

“The second driver has been a rebound in remittances, which are equivalent to around 10 percent of GDP. Data released [last] week show that remittances were up 8 percent year-on-year in July, having fallen 19 percent in May. Remittances are now above their level late last year, leaving aside the spike in December,” Capital Economics added.

With additional dollar inflows from remittances outpacing outflows for import payments, Capital Economics estimated the current account surplus widened to 3 percent of GDP during the second quarter — the highest since 2015, from 0.1 percent of GDP in the first quarter.

“We expect the current account to remain in a healthy surplus over the coming quarters, which should continue to provide support to the currency,” Capital Economics said.—Ben O. de Vera

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TAGS: currency, Finance Secretary Carlos G. Dominguez III, London-based Capital Economics, Philippine peso
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