Peso seen to end 2017 at 51-level vs US dollar

Bangko Sentral ng Pilipinas (BSP) data showed that the country’s gross international reserves (GIR) fell to USD81.346 billion last September from month-ago’s USD81.725 billion and year-ago’s USD 86.139 billion. (Photo by Debbie Tingzon/Flickr, CC BY 2.0)

MANILA — An economist of ING Bank Manila foresees the Philippine peso to end 2017 at 51-level to a US dollar although defensive bias is seen in the coming weeks following the unit’s recent underperformance.

As of last Friday, Oct. 13, the peso finished at 51.39 to a dollar.  Equities and foreign exchange trading were suspended Monday after the Bangko Sentral ng Pilipinas (BSP) halted payments and settlement operations in line with the work suspension declaration by Malacanang for government offices and classes in all levels nationwide in line with the strike by members of a transport group.

In a research note, ING Bank Manila senior economist Joey Cuyegkeng said the local currency weakened for the second straight week as of the trading week ending October 13, partly because of the drop of the country’s foreign exchange reserves last September.

Bangko Sentral ng Pilipinas (BSP) data showed that the country’s gross international reserves (GIR) fell to USD81.346 billion last September from month-ago’s USD81.725 billion and year-ago’s USD 86.139 billion.

Amid this drop, the central bank said the country’s foreign exchange reserves remains adequate since it is still enough to cover 8.5 months’ worth of imports of goods and payments of services and primary income.

Also, it is equivalent to 5.5 times the country’s short-term foreign liabilities based on original maturity.

Cuyegkeng also attributed the peso’s recent weakness of market’s reaction on the country’s trade report last August, wherein imports rebounded and rose 10.5 percent year-on-year and surpassed the 9.4 percent expansion of exports.

He projects a defensive bias for the local unit in the coming days following the 7.8 percent year-on-year rise of remittances last August to USD2.499 billion.

He said the big jump of inflows from Overseas Filipino Workers (OFWs) last August addressed the margin between exports and remittances although this margin is seen to remain erratic in the next months.

“This would keep the Philippine peso on the defensive bias,” he said, citing that “a hawkish BSP would moderate the weakening bias.”

The ING Bank economist, thus, keeps his projection for a rate hike in the BSP’s key rates by December “especially if inflation continues to rise.”

“The pre-emptive move would likely stabilize inflation expectations,” he said, adding that the International Monetary Fund (IMF) raised the need for rate hikes if inflation pressures sustain its uptrend.

Since May 2016, the BSP’s reverse repurchase (RRP) rate is at three percent, the repurchase (RP) rate is 3.5 percent and rate of the Special Deposit Account (SDA) facility is 2.5 percent.

As of end-September this year, rate of price increases averaged at 3.1 percent, slightly higher than the mid-point of the government’s two to four percent target for this year until 2019.

Last September alone, inflation posted a faster rate of 3.4 percent from the previous month’s 3.1 percent on account of faster pace of inflation in several indices namely the heavily-weighted food and non-alcoholic beverages index as well as the alcoholic beverages and tobacco; clothing and footwear; housing, water, electricity gas and other fuels; transportation; and restaurant and miscellaneous goods and services.