MANILA – The Philippine peso is headed for further weakness as it continues to tread the trend established last year, Fitch Solutions Macro Research said Wednesday, citing three factors for its bearish outlook.
In its analysis, Fitch Solution expects the Philippine peso to weaken further to P54.13:$1 by the end of 2019.
The peso closed at P52.47:$1 on Tuesday, Jan. 8.
The interest rate differential with the US, the Philippines’ twin deficits, and the controversial leadership style of President Rodrigo Duterte are having a negative impact on the peso, according to Fitch Solutions’ view that the local currency is “likely to see a modest downside in 2018.”
“Our view at Fitch Solutions is for the Philippine peso to continue its weakening trend against the US dollar over coming months. However, we expect the weakness to be relatively modest as compared with 2018, helped by the decline in oil prices and growing headwinds to broad dollar strength.”
The interest rate differential between the United States and the Philippines is now affecting the attractiveness of the Philippine market.
“Yields remain higher in peer countries like Indonesia and Vietnam, which comparatively dull the attractiveness of Philippine assets in the eyes of foreign global investors,” Fitch Solutions noted.
Fitch Solutions is forecasting the Bangko Sentral Ng Pilipinas to continue its monetary policy tightening in 2019, with a further cumulative increase of 50 basis points to its benchmark overnight borrowing rate to 5.25 percent.
But “the central bank is likely to remain reactive rather than proactive.”
“Secondly, the Philippines’ twin deficit has widened considerably over the past few quarters, and we expect the shortfall to remain elevated with respect to its GDP over the coming year partially due to the government’s expansionary fiscal agenda.”
Fitch Solutions on Tuesday said it expects the budget deficit at 2.9 percent of GDP, short of the government ceiling of 3.2 percent.
The budget deficit is the difference between government revenue and the amount of money it spends during a specific period.
Fitch Solutions said Duterte’s leadership may also put a dent on the local currency. “Alongside his disregard for human rights issues, Duterte has also alienated western investors in favor of closer relations with Beijing,” it said.
“However, it appears that he is now facing a domestic backlash as his administration is seen as bending over backwards for China, and this could have negative implications for his allies at the upcoming May 2019 mid-term elections, and result in further political uncertainty,” Fitch Solutions added. (GMA News)