Weakening remittances take sheen off Philippine peso

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Published: August 10, 2015 8:56:28 AM

The Philippine peso, languishing at a five-year low against the dollar, will lose more ground to the greenback in the coming months as remittances from millions of Filipinos overseas slow and foreign investors rotate out of the Manila stock market.

The Philippine peso, languishing at a five-year low against the dollar, will lose more ground to the greenback in the coming months as remittances from millions of Filipinos overseas slow and foreign investors rotate out of the Manila stock market.

The Philippines is one of the fastest-growing economy in the region thanks to strong private demand. The peso  , unlike many emerging-market currencies in Southeast Asia, has been relatively resilient in the face of volatile capital flows ahead of an eventual rise in U.S. interest rates. While it has weakened more than 2 percent against the greenback so far this year, the decline is less than the falls in the Thai baht, Indonesian rupiah and Malaysian ringgit.

But the sputtering global economy may have at last dealt a blow to remittances – a major economic engine for the Philippines. Remittances in the first five months of 2015 grew on average 5.4 percent, compared with 6 percent a year earlier. That compared with annual increases of 7 percent in the years after the 2008 global financial crisis. Net foreign selling of Philippine stocks has also surged, weighing on the peso.

“The current account will get smaller via lower remittances and drive the peso weaker, so the fundamentals are changing,” said Sean Yokota, head of Asia Strategy at the Scandinavian bank SEB in Singapore, adding that he expects the peso to lose more than 5 percent of its value against the greenback on a three-month horizon.

If the central bank had not intervened, the peso would have fared worse, said a trader. A central bank gauge showed the peso was the least volatile currency in Southeast Asia as of end-July. The baht, rupiah and ringgit were more than two times more volatile than the peso. On Friday, the peso drifted to as low as 45.82 per dollar, the weakest since July 2010. The peso’s fall, however, will benefit exports – another growth engine – and could help the sector bounce back from a 17.4 percent year-on-year drop in May, its steepest in more than three years.

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