Continuing debt problems in Europe are expected to keep the peso volatile against the dollar in the second semester and reach 45.47 to $1 by the end of the third quarter.
According to a joint study by First Metro Investment Corp. and the University of Asia and the Pacific, the peso will have “a slight appreciation bias” in the fourth quarter.
The strengthening in the last three months of the year will be due to greater inflow of foreign funds, especially portfolio investments, owing to a more attractive Philippine economy.
But “the peso-dollar rate is likely to remain volatile in the second half as a credible and lasting solution to the Greek debt problems is not expected to emerge,” the paper said.
The group had predicted that the peso would trade at 43.98 against the dollar by the end of June. Based on data from the Philippine Dealing and Exchange Corp., the actual figure was 43.48.
With the peso trading at 42.74 as of July 8, FMIC and UA&P see the figure at 44.73 at the end of July and 45.08 at the end of August.
Last month, Bangko Sentral ng Pilipinas Governor Amando Tetangco Jr. said the peso stood relatively stable since the start of the year up to mid-June compared with currencies of other emerging economies.
The period saw a slowdown of capital inflows from advanced economies. Back then, the peso appreciated against the dollar by 0.41 percent, ending at 43.66 on June 17.
At the same time, the volatility of the peso—the difference from the average during a given period—registered at 0.96 percent.
Tetangco said the slowdown of capital inflows was likely to be temporary given the continued good prospects for growth in the Asian region and other emerging markets and the renewed uncertainty about the recovery in the major industrialized countries.
“If these advanced economies, particularly the United States, adopt further measures to boost their economies, this can lead to emerging market currencies become more attractive,” he said.
He explained that if there would be a further easing of monetary policy in the United States, more liquidity would be released into the global financial system and these funds tend to go to emerging markets.
While the strengthening of a currency results from increasing inflow of foreign capital, it dampens the competitiveness of a currency by making exports more expensive in dollar terms.
Part of the BSP’s work is to help temper the volatility of the peso, which can hurt exporters.