Peso seen weakening to P53:$1 by yearend
Credit to Author: MAYVELIN U. CARABALLO, TMT| Date: Wed, 27 Mar 2019 17:15:21 +0000
Monetary policy easing and continued imports growth could lead to the peso closing weaker against the dollar by yearend, ANZ Research said.
“We expect the Philippine peso to weaken to 53 [to the dollar] by end 2019,” it said in a report on Wednesday.
The research firm’s latest exchange rate forecast is a downgrade from the previous P52:$1 outlook.
In particular, ANZ Research warned that expectations of interest rate and reserve requirement ratio (RRR) cuts “will undermine the local currency.”
“Policy easing is supportive for growth, but this also increases the risk of stoking inflation,” it noted.
After five consecutive rate hikes in 2018 to address above-target inflation, the Bangko Sentral ng Pilipinas’ (BSP) policymaking Monetary
Board has since kept key interest rates unchanged and is widely expected to begin relaxing policy as early as May.
“A more benign inflation outlook will allow the BSP to ease the overnight reverse repurchase rate (RRP) to counter recent tightening in monetary conditions while providing some support to growth,” ANZ Research said.
It expects a 25-basis points (bps) rate cut to be ordered during a May 9 policy meeting, to be followed by two more 25-bps cuts that would bring the RRP to 4.00 percent by the end of 2019 from 4.75 percent.
The research firm also said the BSP could quicken the pace of reducing banks’ RRR by as much as 400bps over the next four quarters.
The RRR is the proportion of deposits that banks need to keep with the Bangko Sentral against the sum they can loan out to borrowers.
Currently at 18 percent following two cuts last year, it is still considered as one of the highest in the region.
There is also a risk that import growth will stay strong and delay the correction in the country’s external imbalance, ANZ Research continued.
“These ultimately will result in further Philippine peso weakness,” it added.
Latest available data showed that imports were up 5.8 percent to $9.03 billion in January, resulting in a trade gap of $3.76 billion.
A wider trade gap last year dragged the country’s current account deficit to an all-time high of $7.9 billion.
The currency ended 2018 at P52.58 versus the greenback, down sharply from its 2017 close of P49.93:$1.
It closed 17 centavos weaker at P52.61 to the dollar on Wednesday.
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