Peso to remain under pressure as growth slows

THE PESO could stay under pressure against the dollar this week as the market continues to react to data showing a sharp slowdown in Philippine economic growth last quarter.

On Friday, the local unit closed at P59.04 versus the greenback, weakening by 10 centavos from its P58.94 finish on Thursday, Bankers Association of the Philippines data showed.

Week on week, the peso sank by 19 centavos from its P58.85 close on Oct. 30.

The local unit returned to the P59 level after the release of a report showing a weaker-than-expected third-quarter gross domestic product (GDP) growth print, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

“The peso weakened on expectations of softer third quarter GDP and lingering fallout from the flood control scandal. Add a strong dollar and hawkish Federal Reserve signals, and you’ve got pressure from both ends,” Jonathan L. Ravelas, senior adviser at Reyes Tacandong & Co., said in a Viber message.

Philippine GDP expanded by an annual 4% in the three months through September, sharply decelerating from the 5.5% growth in the second quarter and the 5.2% clip in the same quarter in 2024, the Philippine Statistics Authority (PSA) reported on Friday.

This was significantly lower than the 5.3% median estimate in a BusinessWorld poll of 18 analysts and economists.

This brought the nine-month average to 5%, slower than 5.9% in the same period last year and well below the government’s 5.5%-6.5% full-year GDP growth target.

Public construction in the quarter was hit by a corruption scandal involving state infrastructure projects that has dampened both consumer and investor sentiment, officials said. Analysts said growth is unlikely to rebound in the near term unless these governance issues are resolved.

Meanwhile, in the Asian session on Friday, the US dollar was on track for a modest weekly gain on Friday as investors sought to balance the Federal Reserve’s hawkish tilt against lingering concerns over the US economy, Reuters reported.

For this week, the peso may continue to move lower against the dollar, Mr. Ravelas said.

“Continue to expect cautious trading. Investors will be watching GDP results and any hints from the BSP (Bangko Sentral ng Pilipinas) on rate cuts. If the Fed stays hawkish and local growth disappoints, the peso could drift lower.”

Analysts said following the GDP report’s release that manageable inflation and soft growth prospects would give the BSP ample room to continue its easing cycle.

“The weaker growth numbers when combined with softer inflation print of 1.7% year on year for October suggests that the bias for the BSP continues to be for rate cuts, and with BSP also far less active in capping the peso as it weakened past the P59 level,” Michael Wan, senior currency analyst at MUFG Global Markets Research, said in a report.

MUFG Global Markets Research expects another 25-basis-point rate cut at the Monetary Board’s Dec. 11 policy meeting.

Mr. Ravelas said the peso could move from P58.70 to P59 against the greenback this week.

“Volatility remains, but [there should be] no sharp breakouts unless there’s a major surprise,” he said.

Meanwhile, Mr. Ricafort sees the local unit trading between P58.75 and P59.25 versus the dollar. — Katherine K. Chan