Manila, Phillipines — The Philippine National Bank said the peso is likely to weaken back to the 53 to $1 level next year due to the strong demand for the greenback to finance imports amid strong private and public investments.
In a report, PNB economist Jun Trinidad said the country is expected to post a wider current account (CA) deficit next year due to elevated growth prospects.
“Alongside bond steepeners, we expect the peso to correct back to 53 next year on the back of a strong growth-induced, current account deficit,” Trinidad said.
Trinidad said upbeat domestic demand expectations may spur more imports of capital goods and raw materials.
PNB now expects the peso to settle at 51.50 to $1 this year.
The peso has strengthened back to the 50 to $1 level amid the drop in imports over the past few months as a result of government underspending due to the delayed passage of the 2019 national budget.
Trinidad said funding for major investments is essential amid the strong fiscal stimulus back on track side-by-side with big-ticket public investment projects such as the P700 billion Aerotropolis project of diversified conglomerate San Miguel Corp. in Bulacan as well as other public-private partnership (PPP) funded projects.
Aside from slashing interest rates by 75 basis points so far this year, the BSP has lowered the reserve requirement ratio (RRR) for big and mid-sized banks by 400 basis points and for small banks by 200 basis points freeing up more liquidity into the financial system to boost credit growth and economic activity.