$48:$1 possible after Fed lift-off – analyst

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The peso could hit P48 to the dollar once the US Federal Reserve decides to raise interest rates, a forex industry expert said.

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Mario Singh, chief executive officer of Fullerton Markets, told The Manila Times that a 25-basis point hike by the US central bank would mean a reversal of capital flows that would weigh on the peso.

“It will probably hit P48:$1 for sure, because the natural impact is that money will flow back to US because markets are always concerned with the first time. And this is the first time that the US will raise interest rates in seven years after the Global Financial Crisis in 2008,” Singh said.

It is not surprising, he stressed, that the anticipation of a Fed lift-off has been strengthening the US dollar.

“At the start of this year, the US dollar-Philippine peso exchange rate was about P45:$1, today it is slightly above P47:$1. That tells us that the dollar is strengthening against the peso while the peso is weakening against the dollar,” he said.

This is happening not just in the Philippines but also in other countries like Singapore, Malaysia, Taiwan and Thailand, as well as over a basket of major currencies, Singh added.

“If you look at dollar index, it has strengthened over 100 points already. That is a clue that the US dollar is getting stronger,” he said.

“Assuming that the US will raise interest rates in the December 15 to 16 meeting of the Federal Open Market Committee, not just the peso but currencies everywhere will start to weaken.”

Economies, Singh said, have to prepare by ensuring they have enough of a buffer to offset capital outflows.

Ensuring that foreign direct investments (FDI) stay in the Philippines and remittances from overseas Filipino workers (OFW) continue to flow into the economy will be a big help, he said.

These two fund sources will bolster the country’s current account surplus—a major component of the balance of payments (BOP)—and shield the economy from global shocks.

“ If the BOP is big, then the Philippines is shielded from any shocks. That means that the peso is not losing,” he said.

The exchange rate, Singh said, will remain the real test of how the Philippine economy will withstand a stronger dollar.

“If it the exchange rate does not go beyond P48:$1, I think the economy it has done well,” he said.

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