ING BANK ECONOMIST:

Peso weakness expected in the near term

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An economist of ING Bank Manila expects the correction of the Philippine peso in the next few weeks following its strength against the US dollar last week.

The local currency ended last week’s shortened trading week at a five-month high of P49.43 against the greenback. ING Bank senior economist Joey Cuyegkeng, in a research note, traced this to “arbitrage opportunity” given the weakness of the dollar amid concerns over how the US would handle North Korea’s nuclear ambitions, among others.

Other factors that supported the peso were portfolio inflows, expectations of higher remittances from overseas Filipinos ahead of the Holy Week observance, and projections of higher output for the domestic economy in the first quarter of 2017.

However, the peso’s strength ended Monday, when the peso closed at P49.54 to a dollar. Traders attributed this to concerns over Syria and North Korea.

On Tuesday, the peso opened trading at P49.55:$1.00, weaker than the P49.45 recorded Monday.
The economist said the local unit’s recent rally was not expected to be repeated in the next few weeks as investors close their positions on the US currency.

He noted, however, that “a strong [first-quarter gross domestic product] and stock earnings reports may delay such reversal.”

The government will release the first-quarter GDP report in May and expectations are of sustained growth. In the last quarter of 2016, the economy grew by 6.6 percent while full-year growth stood at 6.9 percent.

Cuyegkeng expects “this recent [peso]strength [to]eventually fade unless the Philippines leadership emphasizes economic reforms.”

He pointed to expected price increases following the government’s decision to stop rice importation based on the reported bumper harvest of rice in the first quarter.

“Higher farm gate buying prices would also exert some pressure on inflation but determining the full impact is difficult with the higher buying prices being balanced out by post-harvest inventory,” he said.

Peso weakness is also expected to result from the forecast increase in the Bangko Sentral ng Pilipinas policy rate in the near term, which would result in narrower interest rate differentials with that of the US, the ING economist said.

“For now, a correction of the recent sharp strengthening of PHP (Philippine peso) would be healthy as a base would be built for the next move,” he added.

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1 Comment

  1. While China wants theircurrency depreciated, we want a strong peso. Harder for exporter export. Inducing more imports. Bad economics.