UBS said the Philippine peso could fall to the P51 to one US dollar level next year due to slower economic growth, a deteriorating external position, and higher inflation rate.
“We expect growth to slow in the Philippines—while the external balance has deteriorated, removing a buffer to global capital flows as the Fed is due to raise rates,” UBS said in a report released Tuesday.
It forecasts Philippine gross domestic product (GDP) growth to moderate to 5.6 percent in 2017.
Meanwhile, it anticipates a small current account surplus of 0.3 percent of GDP in 2017 “as weaker domestic demand curbs import growth.”
The policy-setting US Federal Open Market Committee earlier this month voted unanimously to increase the key federal funds rate to a range of 0.5 to 0.75 percent. It also projects three increases in 2017, putting the rate at 1.4 percent at the end of the year.
It would then rise to 2.1 percent at the close of 2018.
UBS said rising inflation and higher oil prices will also hurt the Philippines, as it is a net oil importer.
It said oil prices may rebound to average $60 a barrel in 2017 and $70 a barrel in 2018, that “should push up headline inflation in the Philippines.”
“These dynamics are likely to induce currency weakness,” it said.
The Philippine peso remained at an eight-year low against the greenback on Tuesday, closing at P49.81:$1.