The peso could end the year at 41.50 to a dollar given the solid economic fundamentals and healthy reserves position now being savored by the Philippines—formerly the sick man of Asia—which reflect a stable currency in the eyes of the research arm of Metropolitan Bank & Trust Co.
“The local currency is expected to end the year relatively stable at P41.50,” Metrobank Research surmised in its Economic Weather Report for the third quarter.
“The Philippines' relatively strong economic fundamentals and favorable international liquidity position should continue to provide support for the peso,” it added.
Dollar reserves were recorded at $81.64 billion as of end-June 2013, with monetary authorities expecting to end the year with a record $87 billion.
In May, remittances grew at annual rate of 5.3 percent or above the Bangko Sentral ng Pilipinas's
5 percent growth forecast to $1.867 billion.
But Metrobank said bets on the US trimming stimulus measures—which erodes the appeal of emerging market currencies—will keep the peso at trading at the 42 to 43 per dollar levels this quarter.
“[T]he volatile period is not to be discounted amid still jittery financial markets,” the report read.
The peso weakened nearly 6 percent in June from the start of the year due to regional sell-offs on US quantitative easing fears.
“Research expects the peso to hold the P42-43 levels, especially in the third quarter, given that it is also the Philippines’ import season,” according to Metrobank Research.
Increased remittance inflows and central bank intervention will support the peso the fourth quarter.
“The subsequent rise in remittances in time for the holiday season is seen to help ease the downward pressure on the peso,” the report read. “[S]harp depreciation is not seen as the BSP continues to intervene and smoothen exchange rate volatilities,” it added.
Even a weaker peso will not stoke inflation. Metrobank Research forecasts full-year inflation to settle at 3 percent, at the lower end of the central bank's 3 to 5 percent forecast.
Inflation—which averaged at 2.9 percent in the first half—is “seen to remain manageable as the muted price increases for most of the global commodities would temper any upside pressure,” the report read.
Metrobank Research maintains its earlier forecast that Philippine economy would grow at the upper-end of the government's 6 to 7 percent growth target.
“Consumer spending will still be supported by the sustained inflow of remittances and the well-anchored inflation expectations,” the report read.
However, Metrobank Research warned of offshore developments that could dampen growth.
“Risks to the domestic economy nonetheless remain amid the still unresolved Eurozone crisis, slowing Chinese economy, and impact of the US Fed’s QE (quantitative easing) tapering,” the report read.
The Philippine economy grew by 7.8 percent in the first quarter, the fastest in Southeast Asia. — Siegfrid Alegado/VS GMA News