BSP cuts forecasts for 2014 current account, BOP surpluses

Posted at 07/11/14 4:43 PM

Peso seen supported by 'favorable' external position

MANILA - The Philippine central bank expects the country's current account and balance of payments (BOP) surpluses to be narrower than previously estimated due to higher import requirements, its governor said on Friday.

This year's current account surplus was now seen reaching $6.0 billion, lower than the previous estimate of $10.4 billion made in December last year, while the BOP surplus forecast was trimmed from $3 billion to $1.1 billion.

The Philippines ended 2013 with a BOP surplus of $5.1 billion and a current account surplus of $9.4 billion, or 3.5 percent of GDP.

The cut in forecasts was made in anticipation of a wider trade deficit this year due to higher import requirements, partly driven by the reconstruction effort after a strong typhoon late last year, Bangko Sentral ng Pilipinas Governor Amando Tetangco told reporters.

Typhoon Haiyan, one of the strongest storms ever to make landfall anywhere, reduced almost everything in its path to rubble when it swept ashore in central Philippines on Nov. 8 last year, killing at least 6,200 people.

The government has kept its 2014 export growth estimate at 6 percent but lifted its import growth projection to 9 percent from 6 percent.

The central bank forecasts foreign exchange reserves would total $85.3 billion at the end of 2014, down from the previous estimate of $88 billion. It also lowered its estimate for net portfolio investment inflows this year to $1.5 billion from $2.1 billion.

A major factor underpinning the Philippines' current account surplus is remittances from Filipinos working and living abroad, which are still expected to grow by 5 percent this year.

Despite trimmed forecasts, Tetangco said the peso continues to be "fundamentally supported" by a "favourable" external position. The currency is expected to average between 42 to 45 to the dollar this year, he added.

It is currently hovering at eight-month highs on expectations the central bank could raise interest rates as early as this month.

Earlier on Friday, central bank Deputy Governor Diwa Guinigundo said the monetary authorities still had enough room to tweak policy without hurting the economy.

Domestic demand remains "broadly resilient", Guinigundo said. The Philippine economy grew by 5.7 percent in the first quarter from a year earlier.

Expectations of the first rate rise in three years mounted after inflation averaged 4.2 percent in the first half, above the mid-point of the central bank's 3 to 5 percent target this year.

The central bank has taken several modest steps to stem price pressures, including an increase in its short-term special deposit accounts facility rate and two consecutive increases in banks' required reserves.

It next meets to review policy on July 31.