MUFG expects stronger peso this quarter on increased remittances during holidays

THE PESO is seen to appreciate against the greenback this quarter and rebound from its weak performance last month as the nearing holiday season is likely to boost overseas Filipino worker (OFW) remittances, analysts from MUFG Bank, Ltd. said.

In its monthly foreign exchange outlook published Monday, MUFG said the local currency could rebound to P50.50 per dollar this quarter from its P51.01 close on Sept. 30 and trade within a wide range of P48.50-P52 in those three months.

The peso logged closes ranging from P49.73 to P51.01 against the greenback in September, making it the second-worst performing Asian currency after the Thai baht, according to the report.

It attributed the peso’s decline last month to concerns over stubbornly high inflation as this could affect the economy’s recovery.

Inflation likely quickened beyond the central bank’s target in September, as prices of food and utilities continued to surge, according to analysts.

A BusinessWorld poll of 17 analysts yielded a median estimate of 5% for the consumer price index, near the low end of the 4.8%-5.6% estimate given by the Bangko Sentral ng Pilipinas (BSP).

If realized, headline inflation will breach the BSP’s 2-4% target range for the second straight month. This will also be faster than the 4.9% print in August and the 2.3% a year earlier and mark the quickest rise since the 5.1% in December 2018.

The Philippine Statistics Authority will report September inflation data on Oct. 5.

MUFG said it does not expect the BSP to tighten its policy settings despite elevated inflation as still needs to support economic recovery.

“The BSP would not want to risk hiking rates too soon as the output gap remains fairly large. The BSP is likely to maintain an accommodative monetary policy for some time,” it said.

Evergrande’s debt woes and the US dollar’s strength following the US Federal Reserve’s hints on tapering its asset purchases also contributed to the peso’s drop in September, MUFG said.

“As we head towards yearend, we maintain our view that the peso is likely to receive support from the seasonal spike in OFW remittances particularly in December when it usually peaks due to the Christmas holidays,” it said.

“This is not to mention the fact that remittances continue to be on the rise as more workers are deployed overseas,” MUFG added.

Latest BSP data showed OFW remittances rose by 2.5% from the year earlier to $2.853 billion in July, which was its highest level in seven months or since the $2.89 billion seen in December 2020.

“Robust business process outsourcing revenue is another positive factor for the peso,” MUFG said.

However, following an expected rebound in the last months of 2021, MUFG expects the peso to weaken anew in 2022 and could range between P48.75 and P52.52 versus the greenback in the first quarter of that year for a point foreign exchange projection of P50.75.

It expects the local unit to trade within P49-P52.50 in the second quarter of 2022 and hover within P51-per-dollar level. In the July-September period, the peso is expected to range from P49.25 to P52.65 and settle at around P51.25 against the greenback. — B.M. Laforga