Peso seen to breach 52:$1 mark

MANILA, Philippines — Dutch financial giant ING sees the peso breaching the 52 to $1 level this year with the 6.9 percent drop in remittances from overseas Filipino workers (OFWs) due to the coronavirus disease 2019 or COVID-19 pandemic.

Nicholas Mapa, senior economist at ING Bank Manila, said in the bank’s latest global markets research titled “Philippines: Missing the remittance cushion” that the peso is likely to hit 52.19 to $1 by year-end, 3.1 percent weaker than the end-2019 level of 50.635 to $1.

ING’s latest forecast, however, is stronger than its April forecast of 52.67 to $1 and the 2.5 percent decline in OFW remittances.

Mapa said the country’s current account deficit is seen ballooning to $6.3 billion this year from $460 million last year given the projected sudden reversal in remittance trends as well as the resumption of the government’s import-intensive infrastructure program.

“The sudden swelling of the current account deficit will in turn force the peso back on its heels with the currency expected to weaken to 52.19 by year end,” Mapa added.

The peso yesterday shed nine centavos to close at 50.7 to $1 from Thursday’s 50.61 to $1.

Remittances last contracted in 2001 and have posted an average growth of 9.3 percent over a span of 22 years while registering 18 straight years of growth since 2002.

On average, Mapa explained each of the 9.2 million Filipinos abroad sent about $267 a month as cash remittances coursed through banks hit a record $30.1 billion last year.

Mapa said Filipinos are deployed across the globe with remittances sent from Europe, the Americas, the Middle East, Oceania and even Africa. This broad-based deployment formed a natural hedge against specific regional recessions in the past, with weak remittance flows from affected areas compensated for by remittances from less affected economies.

Remittance flows, Mapa added, remained in expansion even during severe economic downturns such as the global financial crisis in 2008 or the US Federal Reserve taper tantrum in 2013.

“The COVID-19 pandemic has changed the dynamic substantially, with the virus forcing economies around the world to implement strict lockdown measures to help mitigate the spread of infection. This development would undoubtedly threaten employment for scores of OFWs, with more than 230,000 Filipinos recently seeking aid from Philippine authorities as lockdowns were implemented across the globe,” Mapa said.

He said the jobs of around 1.3 million OFWs in oil exporters from the Middle East would be challenged due to subdued global oil prices, while the US reported more than 20 million job lost in April alone and OFWs likely joining the scores of unemployed.

“We can surmise that the initial figures reported by the government do not capture the full extent of OFW job losses, with host countries of Filipino workers all facing economic hardship in coming quarters,” Mapa said.

For his part, Bangko Sentral ng Pilipinas Governor Benjamin Diokno said the peso appears to buck the trend as most regional currencies have depreciated significantly against the US dollar.

“The peso is the least depreciated currency among its peers,” Diokno said.

The BSP chief said the Philippines expects to build up its foreign exchange buffers to a new all-time high of $93 billion this year as the gross international reserves (GIR) level stood at a record $88.99 billion in end March.