THE peso will continue to strengthen in the first quarter of 2013, but no steep appreciation as it is projected to close the present year at P39.40 to a dollar.
Amid the strong appreciation bias for Asian currencies, including the peso, external jitters could still likely bring the local currency under pressure, according to the economic outlook and forecasts for the period of Metrobank Research.
The research cited contributing factors that are likely to drive the currency landscape in 2013, to wit:
* diverging policy of the Bangko Sentral ng Pilipina (BSP);
* uneven progress towards sovereign debt sustainability;
* political change;
* progress in Europe and growth in Asia, and
* investors' search for yield
"The peso will be supported by the solid take up of capital flows and still robust remittances by overseas Filipino workers," the study shows, but a steep appreciation is not seen as the BSP continues to intervene and smoothen exchange rate volatilities.
"The volatile period, especially in the first half of the year, is not discounted as financial markets remain cautious on the still unresolved Eurozone debt crisis and the US fiscal cliff," according to the research.
"Research's view is still that of peso strength towards P39.40 by yearend regardless of such volatilities," it added.
The year 2012 saw a roller-coaster ride for the global foreign exchange market brought by global growth deceleration, continuing Eurozone crisis, and central bank policy responses.
Even as this developed, the Philippine peso performed strongly compared to its Asian neighbors, emerging as the second fastest appreciating currency in Asia and the fourth fastest among all actively-traded currencies in the world in 2012.
The peso has traded within the P40-44 range, with the end of year close of P41.05 registering an almost seven percent appreciation from the start of the year close of P43.94.
According to Metrobank Reserach, the peso has been highly favored by foreign investors amid a number of peso-positive factors.
Capital flows, in the form of foreign portfolio investments (FPI) in stocks, securities and currency markets, yielded net inflows of $2 billion in November, 56 percent higher year-on-year on the back of steady inflation, robust 3rd quarter corporate earnings, successful issuance of $750 million global peso bonds, and stellar GDP growth.
Singapore, UK, US, Luxembourg and Switzerland were the top 5 investor countries.
The country's gross international reserves also reached $84.2 billion as of end-2012, higher by $8.9 billion compared to the end-2011 level. The rise in the reserves level was mainly attributed to foreign exchange inflows from the income from investments abroad of the BSP and deposits by the NG and the PSALM Corp. These were partially offset by outflows from the BSP’s forex operations, payments by the NG and the BSP for their maturing forex obligations, foreign currency withdrawals by the authorized agent ban, and revaluation losses on the BSP's foreign currency-denominated reserves.
Remittances remained resilient, rising to $17.5 billion in the January to October period and posting a year-on-year growth of 5.8 percent.
The continued strong demand for Filipino workers, particularly skilled manpower, helped offset the impact of slower economic growth in some advanced economies. The BSP forecasts a full-year growth of five percent for remittances in 2012.