StanChart sees peso hitting 49:$1 this year

MANILA, Philippines – Standard Chartered Bank sees the Philippine peso depreciating between two and three percent this year but is expected to remain the most resilient currency in the region amid the volatile global financial markets.

Divya Devesh, foreign exchange strategist for South Asia and the Association of Southeast Asia at Standard Chartered Bank, said the peso is expected to end the year at 49 to $1.

“We think we are going to see a gradual pressure on the currency this year,” he said.

Devesh said the peso is expected to settle between 47 and 48 to $1 in the first half and to further weaken to48 to 49 versus the dollar in the second half.

“We see a gradual movement for the peso this year,” he said.

He explained slowing remittances from overseas Filipinos, as well as further equity outflows could further weigh on the peso.

The Bangko Sentral ng Pilipinas (BSP) recently lowered its growth forecast for cash remittances from overseas Filipinos to four percent instead of five percent this year due to the weakening of currencies in host countries and the decline in oil prices.

Latest data from the central bank showed the peso shed 5.2 percent to 47.06 to $1 in end 2015 from 44.72 to $1 in end 2014.

The peso is seen ending the first quarter at 47.30 to $1, the second quarter at 47.75, the third quarter and the fourth quarter at 48.50 to $1.

He explained weak external demand remains a headwind but other sources such as tourism receipts and revenues from the business process outsourcing (BPO) sector would remain positive factors.

Devesh said the peso remains overvalued by most measures and tighter monetary conditions could lead to further weakness in the local currency.

“The dollar has some further strength in the first half before consolidating in the second half amid the continuing policy divergence,” Devesh said.

Likewise investors are going to monitor the move of the Chinese central bank on the yuan.

Standard Chartered Bank global chief economist Marios Maratheftis said the peso would remain the most resilient currency in the region. “The peso is much more stable than other currencies,” he said.

A study conducted by the bank in April last year showed the main shock absorber of most countries against the normalization of interest rates in the US is the currency instead of the economy.

The study showed the most vulnerable currencies to the interest rate hike in the US include the Turkish lira, the Indonesia rupiah, Brazilian real, and the Malaysian ringgit.

He attributed the resiliency of the peso against the dollar to the strong current account (CA) surplus being enjoyed by the Philippines.