The country’s balance of payments position slumped to hit its biggest deficit in nearly three years in November, reversing the year-to-date tally also into negative territory from more than a $2 billion surplus a year earlier, central bank data on Monday showed.
The BOP yielded a deficit of $1.67 billion last month, swelling from a $141 million gap recorded a year earlier and $183 million in October.
The November deficit marked the widest in 34 months, or since January 2014, when the payments position showed a gaping $4.48 billion.
The payments deficit in November this year also brought the 11-month tally down to a deficit of $206 million from a $2.136 billion surplus in November 2015.
The central bank did not provide an explanation for the swing in the BOP position.
Traced to Fed hike
A private bank analyst, however, said the deficit may be traced to the market’s anticipation last month of a United States Federal Reserve interest rate hike.
That became a reality last week when the Fed raised its key rates by 25 basis points, driving the peso weaker and triggering net foreign selling on the Philippine stock market.
“The BOP reverted back to a deficit [in November]mostly likely because of increased capital outflows in anticipation of a US rate hike this December and bets of stronger US economic activity next year amid Mr. Trump’s promise of more fiscal stimulus,” Land Bank of the Philippines market economist Guian Angelo Dumalagan explained, referring to US President Donald Trump.
Dumalagan added that the resulting depreciation of the peso might have also helped fuel the reversal of the country’s BOP.
On November 24, expectations of a Fed rate hike weighed on the Philippine peso, causing the local currency to weaken to the P50:$1 level.
“Given that foreign outflows continued in December, I think it would be difficult for the BSP to achieve its BOP target this year,” Dumalagan added.
The central bank had slashed its balance of payments (BOP) surplus projection for 2016 as it took into account the first nine months yielding a lower-than-expected excess, as well as the International Monetary Fund’s (IMF) downward revision to its global growth estimate for the year and possible further interest rate hikes in the US next year.
For 2016, the central bank still expects to see the overall BOP in surplus, though lower at $500 million, instead of the $2 billion estimated in May for the full year.
This projection compares with the actual full-year 2015 payments surplus of $2.62 billion, which was a reversal of a $2.86 billion deficit in 2014.
For 2017, the central bank earlier forecast that the BOP would post a surplus of $1 billion, contributing 0.3 percent to gross domestic product.
It expects a pick-up in global economic growth next year, which, if based on the October projection by the IMF, should be 3.4 percent. The brighter outlook for next year also considered a gradual increase in international oil prices, less volatility in global financial markets, and the continued favorable growth prospects for the domestic economy.