The Philippine central bank’s accommodative stance amid policy tightening by the US Federal Reserve could weigh the peso down in the coming months, Fitch Solutions Country Risk & Industry Research said.
It said it expects the peso to average at P51.80 a er dollar this year, weaker than its P49.29 average in 2021.
“The Bangko Sentral ng Pilipinas’ (BSP) near-term dovish stance, loose fiscal policy and a worsening current account balance outlook will all weigh on the unit, alongside US Fed monetary tightening,” Fitch Solutions said in a note on Friday.
The peso closed at P50.999 on Dec. 31, 6.2% weaker than a year earlier.
Fitch Solutions cited central bank Governor Benjamin E. Diokno’s statement that the BSP was unlikely to raise interest rates in the first half because they want to see at least four to six quarters of solid economic growth and an improving labor market.
“The statement can be seen as the BSP’s willingness to support growth at the cost of some peso weakness, which we expect to materialize as the US Fed begins its hiking cycle,” it said.
“We expect this gradual depreciatory trend to persist over the near term as investors favor emerging currencies with higher carry and more hawkish central banks, against the backdrop of US monetary tightening,” it added.
Fed officials said they expect as many as three rate increases this year, noting they are ready to respond to elevated inflation.
Meanwhile, Fitch Solutions said they don’t expect the peso to be affected much by this year’s elections, taking into account the peso’s performance in the weeks leading to the presidential election in 2016.
But the market would regard a win by Ferdinand “Bongbong” R. Marcos, Jr., the only son and namesake of the late Philippine dictator, as negative, they said, since this could signal a possible return to authoritarianism.
“We do not anticipate a significant divergence from the strongman leadership style of the incumbent president, Rodrigo Duterte, and as such, expect only modest volatility around the elections,” Fitch Solutions added. — Luz Wendy T. Noble