THE PESO could strengthen this week amid optimism coming from the recently signed sin tax bill.
The local unit closed at P50.815 on Friday, appreciating by 16.50 centavos from its Thursday finish of P50.98 per dollar, according to data from the website of the Bankers’ Association of the Philippines.
Week on week, it also strengthened by 7.60 centavos from its P50.891-to-dollar finish on Jan. 17.
Rizal Commercial Banking Corp. (RCBC) Chief Economist Michael L. Ricafort said the peso’s performance was supported by low global oil prices.
“Peso exchange rate closed stronger after lower global oil prices at new 1.5 month lows that could lower the import bill and trade deficit,” Mr. Ricafort said in a text message on Friday.
Reuters reported that crude prices were down by more than 2% on Friday with the Brent seen to have its largest weekly decline in more than a year after concerns on the epidemic spread of coronavirus which originated from China, which is the world’s second-largest oil consumer.
Brent crude was down to as low as $60.69 per barrel, dipping by 2.2% or by $1.35. The global benchmark fell 6.4% this week, its biggest weekly loss since Dec. 21, 2018.
Meanwhile, US crude futures ended at $54.19 a barrel, shedding 2.5% or $1.4 and registering a 7.4% week on week, largest since July last year.
Latest data from the Philippine Statistics Authority showed the country’s merchandise import bill declined eight percent year on year to $8.94 billion in November, down from the 10.8% traced in October, but a turnaround from the 9.6% growth logged in November 2018.
Merchandise imports slipped by 4.6% year on year to $99.15 billion in the eleven months to November 2019.
For his part, UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said the peso appreciated on the back of the strong fourth-quarter gross domestic product (GDP) growth data.
“It seems the market was upbeat on Q4 GDP results. Strength may have been also coming from positive expectations of 2020 economic growth,” he said in a text message on Friday.
GDP growth in the fourth quarter of 2019 stood at 6.4%. This brought average GDP growth for the year at 5.9%, a little behind the six percent minimum target of the government.
Economic growth is likely to pick up in 2020 as the government catches up on spending, according to Finance Secretary Carlos G. Dominguez III.
Mr. Asuncion said optimism from the market that 2020 growth will be better is expected this week, which will likely give support for the peso.
For his part, RCBC’s Mr. Ricafort said that developments on the legislation of key fiscal reform measures could give positive sentiment in the markets.
“Sentiments on the local financial markets including the peso, could be supported by the latest sin tax law signed by President [Rodrigo R.] Duterte that could improve the country’s fiscal performance,” he said, noting that it will also be a support for the credit rating of the country.
On Jan. 22, Mr. Duterte signed into law Republic Act No. 11467 or the new “sin” tax law which is expected to generate P17 billion worth of revenues in the first year of implementation that will partly fund the government’s universal health care program.
The law will increase ad valorem tax to distilled spirits, wines, and liquors among others. It will also increase levies on electronic cigarettes.
UnionBank’s Mr. Asuncion sees the peso ranging from P50.75 to P50.95 against the dollar this week while RCBC’s Mr. Ricafort said the peso could play around the P50.60 to P51 levels. — LWTN with Reuters