The inflows of foreign portfolio investments or “hot money” are seen to support the Philippine peso in the remaining months of the year.
“Associated hot money inflows are exerting peso-appreciation pressure,” ING Bank regional economist Tim Condon said.
Condon said that ING Bank has revised its yearend forecast for the local currency to P42.80 to a dollar from its previous estimate of P43.50 to a dollar.
Latest data from the Bangko Sentral ng Pilipinas (BSP) showed that hot money registered a net inflow of $279 million in the week ending September 27. Year-to-date, total inflows increased to $21.586 billion.
Meanwhile, in a report, Standard Chartered Bank (SCB) said that it has a bullish outlook for the peso.
“We expect steady Philippine peso appreciation in the next couple of quarters,” the bank stated in its latest Asia Regional Focus report titled Clearing Skies.
SCB noted that seasonal factors are “favorable” until year-end, and the postponement of the United States Federal Reserve quantitative easing tapering is likely to spark new capital inflows to local-currency asset markets.
“Valuations are generally more attractive now than in the first half of 2013, and the Philippine peso’s nominal effective exchange rate has fallen 4.9 percent from its May average,” it said.
However, the bank added that the gains of the peso in the coming quarters may be subject to reversal later, adding that it is unclear whether peso appreciation is needed to achieve economic stability, given the benign inflation and muted export growth.
The country’s merchandise exports grew for the third consecutive month this year, outperforming selected countries in Asia in August 2013. It expanded by 20.2 percent to $4.6 billion from $3.8 billion a year ago.
Meanwhile, the Bangko Sentral ng Pilipinas said that the country’s inflation rate may pick up in the remaining months 2013, but still be well within its 3-percent to 5-percent target band for the year.
“Philippine peso valuations may be off their highs, but we estimate that the real effective exchange rate is still 14.7 percent above its past-decade average,” the SCB report further said.
The bank also reported that any sustained peso advance may simply prompt new steps from the authorities to curb local foreign exchange strength.
“We have a neutral foreign exchange weighting on the Philippine peso for both the short and medium term,” it added.