THE local currency has reached its third consecutive month of appreciation in September amid turbulent economic waters, but local analysts from First Metro Investment Corporation (FMIC) and University of Asia and the Pacific (UA&P) said this strength may begin to taper after October as the economy gradually returns to normal.
In the latest issue of The Market Call, economists at FMIC and UA&P said the peso appreciated further by 0.7 percent to average P48.51 to a dollar in September from averaging at P48.84 to a dollar in August. The volatility measures also eased to 7.6 percent in September from 22.5 percent as it traded narrowly between P48.37 to a dollar and P48.63 to a dollar during the period.
Economists attributed the positive sentiment on the local currency to the Bangko Sentral ng Pilipinas’s (BSP) announcement that it was able to increase the country’s Gross International Reserve (GIR) levels to a record high amid the pandemic.
Just last week, BSP Governor Benjamin Diokno announced that the September 2020 dollar reserves hit $100.5 billion. This is equivalent to 10 months of imports of goods and payment of services and income. It is also about 9.2 times the country’s short-term debt based on original maturity.
Latest data from the Bankers Association of the Philippines (BAP) also showed that the peso continued to appreciate against the dollar in the first few days of the month. It was at its strongest at P48.305 to a dollar on October 9 versus its P48.49 to a dollar at end-September.
However, FMIC and UA&P economists said that while the strong GIR impressed financial markets, the peso may begin to trade sideways as a clearer and more solid economic recovery gains traction.
“By October, the peso may see its peak. A stronger economic recovery will likely put it back to a mild depreciation mode,” the report read.
On Monday, the peso opened the week with at a close value of P48.6 to a dollar, data from the BAP showed.
Earlier, Fitch Solutions also said the peso will likely shift to a depreciation mode in the last three months of the year.
“Looking to the next three to six months, we believe further appreciatory pressures could be somewhat offset by a pick-up in import demand as the Philippine economy reopens and the uncertainty surrounding the November US presidential elections,” Fitch said.
Remittances, one of the country’s main dollar sources, also showed signs of weakness in August after two consecutive months of recovery. The BSP reported that cash remittances fell by about 4.1 percent during the month.
“Although we previously expected the upcoming Christmas holidays to maintain the growth in remittances over the last two months, job market challenges and layoffs abroad continue to threaten this positivity,” FMIC and UA&P economists said.
Image credits: Nonie Reyes