Lower remittances seen in Q3
MANILA, Philippines – United Kingdom-based investment bank Barclays and Dutch financial giant ING Bank see lower cash remittances from overseas Filipinos for the third quarter of 2015 amid the continued weakness of regional currencies against the US dollar.
While seasonality would imply that remittances should have increased month-on-month, excessive currency weakness in key countries such as Singapore, Malaysia, and in some Middle East countries weighed on valuations, said Rahul Bajoria, economist at Barclays Bank Singapore.
The decline was traced to the depreciation of some currencies against the US dollar, particularly the Euro, Canadian dollar, and the Japanese yen. The weakening of these currencies reduced the US dollar equivalent of remittances sent from host countries.
“As such, with the Philippine peso being an outperformer against most regional currencies, and with remittances reported in US dollar, flows continue to be weighed by the sharp declines seen in regional currencies,” Bajoria said.
Latest data from the Bangko Sentral ng Pilipinas (BSP) showed the amount of cash sent home by Filipinos living and working abroad in August fell for the first time in over 12 years. It remained though the in positive territory in the first 8 months of 2015.
Cash remittances amounted $2.04 billion in August, 0.6% lower compared to $2.06 billion in the same month last year. This was the first time since April 2003 when the amount of money sent home by Filipinos to their loved ones in the Philippines contracted by 10.9%.
“We believe the risk of the next print also being negative has risen, and remittances overall could be negative for the third quarter. Weakness in host countries' currencies may also push some overseas workers to hold off from sending money home, which may result in higher remittances closer to the festive season,” Bajoria said.
BSP Deputy Governor Diwa Guinigundo earlier said though the state central bank is confident of meeting its 5% growth target for remittances this year despite a letdown in August. (READ: BSP confident remittances to grow 5% despite August setback)
But ING Bank Manila senior economist Joey Cuyegkeng said a flat growth in cash remittances is expected this year as the country booked its first back-to-back weakening of growth since early 2009.
Cuyegkeng said, part of the weakness could be attributed to a strong US dollar against the currencies of host economies such as Japan and Singapore.
Remittances from the Middle East also dropped by 6.8% in the first 8 months of the year as low oil prices has affected fiscal spending in the region. Likewise, remittances from Eurozone fell 6% from January to August this year.
“Slower growth or contraction in remittances from these regions would continue to weigh on remittances. A flat growth this year, an unlikely scenario, would still mean a cash remittance of $24.3 billion,” Cuyegkeng added.
Overall, Barclays is confident that remittances would bounce back in the fourth quarter of the year as Filipinos abroad send more money to their loved ones ahead of the Christmas season.
“This is unlikely to be a significant concern, as we think a potential decline in remittances would only likely prove temporary. With the recent rebound in regional currencies, we expect remittance flows to improve in the fourth quarter,” Bajoria said. – Rappler.com