ANZ: Peso still likely to hit P54:$1 by yearend
Australia-based ANZ Research continues to hold a bearish outlook for the Philippine peso despite noting that higher interest rates were providing the currency some relief.
“While we have been cautious on the Philippines, we note some signs of improvement,” it said in a report.
In particular, the research firm pointed out that the peso was mostly trading in a narrow range of P53.0-53.5:$1 since mid-June, “outperforming its Asian peers” after policy rate hikes totaling100 basis points since May.
The currency ended last week at P53.46 versus the greenback, two centavos stronger from Thursday.
“Meanwhile, the economy is moving in the right direction, which we have maintained needs to slow to avert risk of over-heating,” ANZ Research also said, noting that second quarter gross domestic product (GDP) growth of 6 percent was the lowest in three years.
“The current account deficit has been contained at below 1 percent of GDP, while credit growth appears to have peaked,” it added.
Latest data showed that the current account — a major component of the balance of payments — hit a deficit of $208 million in the first quarter of 2018, equivalent to 0.3 percent of GDP. Bank lending, meanwhile, grew 19.1 percent last June.
Still, ANZ Research said it still expected the local currency to fall to P54 against the dollar by yearend.
“We maintain a bearish view on the PHP (Philippine peso) on the back of deteriorating external balances,” it said.
The peso, described as Asia’s worst-performing currency this year, fell to the P53:$1 level in June due to concerns over the country’s widening current account deficit and the prospect of higher US interest rates.
Economic managers have raised their peso-dollar exchange rate assumptions to P50-53:$1 for 2018-2022 from P49-52.
Bangko Sentral Governor Nestor Espenilla Jr. recently emphasized that monetary authorities remained committed to maintaining a flexible and market-determined exchange rate framework.
Espenilla warned that a fixed exchange rate was “a very dangerous path for a small open economy like the Philippines” and could also result in lower international reserves, over-indebtedness, deficits and an uncompetitive exports sector.
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