MANILA – The Philippine peso continues to be the worst performing currency in the region, having slipped by 7.0 percent against the US dollar year-to-date, according to a report by a Fitch Group company.
London-based BMI Research sees the peso weakening to P54 per US dollar by the end of 2018.
“Given that technicals and fundamentals on balance are pointing to further weakness, we are revising our forecast for the Philippine peso to end the year around P54:$1, from P51:$1 previously, which will likely take the full-year 2018 average to P52.50:$1, from P51.95:S1 in first half 2018,” BMI Research said in a report.
Ruben Carlo Asuncion, chief economist at Union Bank of the Philippines, espouses the same bearish position on the peso-dollar exchange rate.
“I’m expecting it to actually slide further …”Asuncion told GMA News Online.
“If trade war tensions and uncertainties continue, the peso is in a lot of downward pressure,” he said.
The local currency weakened by 4 centavos to P53.515:$1 at the close of trading on Thursday, from P53.475 on Wednesday, its weakest in nearly 12 years since closing at P53.550:$1 on June 29, 2006.
“Technically, the Philippine peso is looking bearish after breaking through support at around the P53.20:$1 level,” BMI Research said.
“We see the next level of possible backstop at around P53.70:$1, followed by at approximately P56:$1 if the support fails to hold,” it said.
No structural weakness
Exchange rate movements, whether depreciation or appreciation, should not be taken as a sign of structural weakness in the economy, the Department of Finance said in a separate statement Friday.
“In an environment of global uncertainty where domestic macroeconomic fundamentals are sound – real GDP growth is higher than 6 percent, inflation is within the neighborhood of projected levels, gross international reserves are in excess of 8 months of imports of goods and services, BOP and fiscal deficits are financeable and the debt ratios are declining – the exchange rate should move flexibly so that economic players are able to adjust promptly to market dynamics, thus sustaining economic growth,” the DOF said.
According to BMI Research, the peso remains vulnerable due to negative real interest rates as headline inflation – at 4.6 percent in May – is significantly above the Bangko Sentral ng Pilipinas’ (BSP) policy rate of 3.50 percent.
The central bank implemented two policy rate adjustments this year – in May and earlier this month – each by 25 basis points, to ease rising commodity prices.
“In our view, the interest rate is too low for an economy that is expanding by close to 7 percent, and this concern has also been echoed by bond investors who are demanding higher returns for their expectations of higher inlfation,” BMI Research noted.
“While the BSP hiked its benchmark interest rates by a total of 50 basis points in May and June, and signaled that it is prepared to continue hiking to safeguard macroeconomic stability,” it said.
“We forecast another 25 basis points rate hike before end-2018, this is likely to be offset by rising interest rates globally.”
The situation is not unique to the Philippines and its currency.
“But, it must be noted that other emerging economies’ currencies are under the same pressure under the current environment. However, macroeconomic fundamentals are holding up and healthy that’s why there is no cause for alarm,” Asuncion said.
The seasonal surge in remittances from overseas Filipinos during the last two quarters of the year could redeem the peso, said Michael Ricafort, RCBC head of economics division.
“There is a chance for a seasonal improvement in the peso exchange rate in the fourth quarter, as seen in most of the recent years under normal market conditions,” Ricafort said. (GMA News)
