Peso seen strengthening by fourth quarter

The Philippine peso’s position against the US dollar may be bolstered by the seasonal rise in remittances later this year, despite currently weak showings of both the local currency and inflows from Filipinos overseas.

The peso has lost 10.5 percent or P5.36 vis-a-vis the greenback since the start of the year. It also reached its record weakest at 56.45:$1 twice in intraday trading last week, and closed near this at 56.36:$1 on July 15.

Meanwhile, the Bangko Sentral ng Pilipinas (BSP) said personal remittances from Filipinos based overseas grew by 2 percent to reach $2.7 billion in May from $2.65 billion in the same month of 2021.

From January to May, inflows rose by 2.5 percent to $14.02 billion from $13.68 billion in the same five months last year.

So far, growth rates are below the 4 percent that the BSP expects this year and in 2023 as well.

According to Michael Ricafort, chief economist at the Rizal Commercial Banking Corp., the peso exchange rate could be supported by the expected seasonal increase in remittances inflows and export sales proceeds during the fourth quarter, which are converted to pesos especially during the holiday season.

“These are based on consistent patterns seen in recent years [and] decades,” Ricafort said.

Ironically, the economist observed that the peso traded weaker last week as the BSP reported weaker remittances growth.

Ricafort said cash remittances alone—funds that were sent through the banking system and which accounted for 90 percent of total remittances —grew by 1.8 percent in May, a pace that was among the slowest in the past 12 months or so.

He added that the waning volume of inflows was partly due to the 10-percent plunge of the peso against the dollar, which reduced the need to send more US dollars to dependents in the Philippines.

On the other hand, quickening inflation—which was pegged at 6.1 percent in June— also prompts the need to send more dollars into the country.

“The peso’s depreciation in recent weeks and months is considered overdone and already more than makes up for the narrower premium and interest differentials between the Philippines and the United States,” he said. INQ