MUFG Global Markets Research sees the peso staying at the P55-per-dollar level until the end of 2024 amid easing inflation, a narrowing trade deficit and faster economic growth last quarter.

“We now forecast the peso-dollar rate at P55.40 in three months and P55 in 12 months. This continues to imply some underperformance against other Asian FX (foreign exchange),” it said in a report on Thursday.

It previously saw the peso trading at the P57 level until next year.

MUFG Global Markets Research now sees the peso ending the second quarter of 2024 at P55.30 and the third quarter at P55.20.

On Thursday, the local unit closed at P55.30 per dollar, strengthening by less than a centavo from its P55.305 finish on Wednesday, Bankers Association of the Philippines data showed.

Year to date, the local currency strengthened by 45 centavos from its P55.755 close on Dec. 29, 2022.

“On the domestic front, we saw a few positive developments. First, inflation is trending downwards with lower food prices, albeit still sticky and subject to the vagaries of supply-side shocks,” MUFG Global Markets Research said.

Headline inflation slowed to 4.1% in November from 4.9% in October and 8% in the same period last year.

Year to date, inflation averaged 6.2%, faster than 5.6% in the same period in 2022 and above the central bank’s 2-4% target.

MUFG Global Markets Research added that its outlook for the peso is supported by a narrowing trade deficit amid lower oil prices, weak capital goods imports, and modest rebound in electronics exports.

Still, the trade deficit is “expected to remain large at 3% of GDP (gross domestic product) although narrowing from above 4% previously, with a pickup in infrastructure imports offsetting lower oil prices,” it said.

The trade gap shrank by 27% year on year to $3.51 billion in September from the $4.83-billion deficit recorded in the same month last year. It was also smaller than the revised $4.13-billion deficit in August.

The faster GDP growth seen in the third quarter also supported its outlook for a stronger peso, MUFG Global Markets Research said.

The Philippine economy grew by 5.9% in the third quarter, faster than 4.3% in the second quarter and 7.7% a year earlier. Year to date, GDP growth averaged 5.5%, below the government’s 6-7% target for the year. — AMCS