Peso expected to weaken vs dollar to ₱53 by Sept. — ANZ
By Melissa Luz T. Lopez
Senior Reporter
THE PESO could breach the P53 level against the dollar later this year given the central bank’s reluctance to raise policy rates, ANZ Research said.
ANZ sees the peso trading at P53 by September and P53.50 by year’s end.
“In the case of PHP, the deterioration in the external deficit and reluctance by the Bangko Sentral ng Pilipinas (BSP) to raise interest rates mean the peso will need to bear the burden of adjustment,” bank economist Sanjay Mathur said in its quarterly report published yesterday.
The peso closed at P52.30 yesterday, weaker than the P52.215 finish on Monday. The exchange rate averaged P51.1471 against the dollar in the first two months of the year, according to central bank data.
ANZ said a breach of the P54 level could come by late 2019.
The bank outlined the case for the peso’s depreciation by citing the BSP’s refusal to raise borrowing rates despite signs of rising inflation.
February inflation picked up to 3.9% from 3.4% in January under the rebased index using 2012 prices, according to the Philippine Statistics Authority. It was the highest level in over three years, which the BSP attributed to the “full pass-through cost” of additional levies under the Tax Reform for Acceleration and Inclusion law which took effect Jan. 1.
The Monetary Board kept benchmark rates unchanged during its March 22 review, noting that price pressures are temporary while domestic economic activity remains robust.
ANZ has withdrawn its forecast of two rate increases from the central bank within 2018, taking its cue from statements made by BSP officials that showed “no inclination” to tweak policy settings.
“Needless to say, the combination of high inflation and a weaker external position will be reflected in the performance of the PHP,” the bank said.
The current account deficit nearly doubled to $2.5 billion in 2017 from $1.2 billion a year earlier as import growth continued to outpace that of exports, according to the central bank.
The deficit has been cited as a major factor in the weakening of the peso, although central bank officials have said that the wider trade deficit simply reflects capital accumulation for the Philippines’ ambitious infrastructure spending plans.
Some analysts have said that the BSP risks falling behind as global yields move up, making the Philippines lose its competitiveness relative to regional peers.
BSP Governor Nestor A. Espenilla, Jr. said he does not see the need for fresh monetary stimulus as growth remains within potential. Faster and broader-based price movements, however, could finally trigger a rate hike.
Mr. Espenilla, however, said that the flexible exchange rate stand is an “appropriate response” to the emergence of a current deficit, as it helps keep the economy in balance. He added that the BSP conducts “tactical” interventions to temper any sharp swings of the currency during day-to-day trading.
The BSP’s last tightening move was in September 2014. However, procedural cuts to policy rates took effect in June 2016 during the shift to an interest rate corridor, resulting in a 2.5-3.5% spread.
ANZ sees the central bank remaining on hold until the end of 2019.
