Peso weakening to 53:$1 this year, economists say

MANILA, Philippines — Economists expect the peso to weaken to 53 to $1 this year amind the escalating tension between US and Iran.

Philippine National Bank economist Jun Trinidad said the peso is expected to drift back to the 52 to 53 range against the dollar especially with the escalating tension between the US and Iran in the Middle East.

“While the extent of the oil price volatility and other economic risks associated with this Middle East event risk have yet to pan out, we anticipate the peso followed by the local equity market would likely take the brunt of the negative news flow on any escalation of conflict in the region,” Trinidad said.

Trinidad said the weaker peso view underscored a larger current account (CA) deficit outlook of two to three percent of gross domestic product (GDP) this year.

The Lucio Tan-led bank expects higher importation of capital goods and raw materials as the Duterte administration ramps up its Build Build Build program for crucial infrastructure projects.

Trinidad said inflation trajectory could edge higher to an average of 2.8 percent this year from two percent in December amid oil price uncertainty coupled with a weaker peso.

“Persistent oil price uncertainty punctuated by oil price spikes would compel the central bank to stay cautious on further easing of policy rates while turning up the hawkish inflation rhetoric,” Trinidad said.

HSBC Private Banking chief market strategist for Asia Fan Cheuk Wan said the peso may depreciate to 53 to $1 this year after emerging as the second best performing currency in the region last year.

The peso strengthened by 3.7 percent to close 2019 at 50.635 from 52.58 to $1 in 2018.

“On currency, expected policy rate and reserve requirement ratio cuts by the BSP would reduce the relatively high carry buffer of peso. We expect the peso to weaken to 53 against the dollar by end-2020 due to loosening monetary and fiscal policy, fading foreign direct investment inflows and rewidening of the current account deficit,” Fan said.

Fan said the British banking giant sees the Philippines CA shortfall widening to 2.4 percent of GDP in 2020 from two percent of GDP as of the second quarter of last year.

Meanwhile, Fitch Solutions Research Macro expects the local currency to weaken to 51.70 to $1 this year.

“We at Fitch Solutions forecast the peso to average at 51.70 per $1 in 2020, versus a prior forecast of 53 per $1. Our revision partially reflects a stronger-than-expected starting point for the currency in 2020, but also broad support for Asian foreign exchange on the back of a phase one US China trade deal expected to be signed in early 2020,” it said.