Philippines: Inflows from OFWs, BPOs may prop up peso

MANILA, Philippines — The inflows of remittances and receipts from business process outsourcing (BPO) industry in the fourth quarter may help prop up the peso against the dollar, according to Finance Secretary Benjamin Diokno.

During the 17th Philippine Summit hosted by The Asset, Diokno said he is banking on remittances from overseas Filipino workers (OFWs) and receipts from the BPO industry to support the peso.

“I reckon that for the last quarter alone, we would come up with close to $16 billion additional income from those two sources alone,” Diokno said.

“If I were the governor of the central bank, we’d use around $10 billion for the last quarter because I’m sure that there is some $16 billion coming in. So it’s not as if we are going to lose our reserves,” he said.

Diokno said that while the use of reserves to defend the peso has been discussed with Bangko Sentral ng Pilipinas (BSP) Governor Felipe Medalla, the specifics on the $10 billion is his idea.

Diokno served as BSP governor before his appointment to the Department of Finance.

“I don’t know how much is his budget for reserves because that’s the governor’s prerogative. We did not talk about the $10 billion,” Diokno told reporters.

“The decision-making is to be done by the Monetary Board, not just my view or his view. It’s the decision of the board and we are always data-dependent on the situation,” he said.

Sought for comment, ING Bank senior economist Nicholas Mapa said the projected $16 billion in inflows could help support the peso.

However, he noted that the trade deficit is also expected to be sizeable by the end of the year. The country’s trade gap hit a record $6 billion in August.

“Thus, the projected inflows may very well be diluted or completely offset by a likely widening trade deficit,” Mapa said.

Rizal Commercial Banking Corp. chief economist Michael Ricafort, for his part, said such a measure has already been used during past financial crises.

“These measures would complement and are consistent with the recent signals from the BSP about possible large hikes in policy rates, as well as increased intervention in the local foreign exchange rate market,” he said.

The country’s foreign exchange buffer dipped to a two-year low of $93 billion in end-September as the peso continued to hit record lows amid the strong dollar.

Nonetheless, the BSP noted that the reserves represent a more than adequate external liquidity buffer equivalent to 7.4 months’ worth of imports of goods and payments of services and primary income.

“It used to be around $110 billion under my watch. We actually bought a lot of dollars during that time when the peso was moving toward P47 and that’s what the buffers are for, to use it for bad days,” Diokno said.

Further, Diokno maintained that the government will do its best so as not to overshoot the P60:$1 level. The finance chief said the peso will remain at P59 at the maximum over the next few weeks.

In fact, Diokno said the peso could return to the P55 level toward the latter end of the year due to the expected influx of remittances from OFWs in time for the holiday season.

Meanwhile, Diokno said a 100-basis-point rate hike is appropriate for the country given the aggressive US Fed. The next meeting of the Monetary Board is scheduled on Nov.17.

“The Fed is seen raising rates by 75 basis points and another 75 basis points. We will adjust our interest rate in conjunction with the adjustment by the Fed but we don’t plan to match that because they have a bigger problem than us with their inflation close to 10 percent already,” Diokno said.

“But there’s nothing sure about it. The price of oil could drop in the coming weeks or could be more serious,” he said.