THE Philippine peso is expected to depreciate to the P50-P51:$1 level next year as the greenback gains traction from the impending US interest rate increase and the expanded infrastructure spending on the domestic front.
During one of the panel discussion at the 48th FINEX National Conference on Friday, speakers agreed on a 4 percent to 6 percent average depreciation of the peso per year.
Participants also shared the view that an exchange rate of P51:$1 would still be beneficial and manageable for the Philippines.
Emilio Neri Jr., vice president and lead economist of the Bank of the Philippine Islands, noted the depreciation of the peso would be more favorable than hurting the economy.
“Our view for the foreign exchange has been to some degree of a depreciation. I think it will be P50 to P51 a dollar at the end of next year. I hope it doesn’t happen this year, with the communication style of our leader. But I think that level is very reasonable,” Neri said.
“I think 4 percent to 6 percent is a manageable level of depreciation per year, so the P50 to P51 level next year will be under that 6 percent. If you look at the cost benefit of it, it’s really more favorable to us,” he added.
Neri told The Manila Times that the peso is bound to depreciate further as foreign funds withdraw from the Philippine market because of the US interest rate hike.
“The infrastructure plans will be kicking off next year. That will require foreign currencies. This administration vowed for a much bigger deficit than the previous administration, and this will be requiring a lot of foreign currencies.
“They very clearly stated that they will be funding more of their projects by borrowing from the local market, but if they have to import stuff, they need to buy dollars from the spot market. So that’s going to cause some upward pressure on the dollar against the peso,” Neri said.
As early this quarter, the current administration is already ramping up its infrastructure spending which is contributing to the present depreciation of the peso.
He said the peso is being stabilized by the Bangko Sentral ng Pilipinas (BSP) by selling dollars in the market.
“If the BSP has not intervened, we are already at the P50 level. But because they are around to sell dollars to smoothen the fluctuations, then that will cushion the impact of the net foreign fund selling. There are more fund outflows than inflows,” the BPI economist said.
“The government’s infrastructure spending will fully come in next year, so there would be more demand for outflows,” he added.
The peso depreciation will be beneficial to the Philippine economy, particularly to the overseas Filipino workers
(OFWs), the business process outsourcing (BPO) sector, and the increased competitiveness of local products in the domestic market against the imported products.
“Aside from the OFWs and the BPO sector, local companies can compete with imports. Local companies, because the peso is weaker, have a better chance of selling their products to the local market versus the imported products. With the weaker peso, if we support the local companies, more jobs will be created, and more funds will be raised in the capital markets for the expansion of these companies, Neri said.
Joseph Incalcaterra, HSBC Asia economist, noted during the panel session that the economy will benefit from the tax reforms, the first set of reforms being sought by the Duterte administration from the Congress.
During the same panel discussions, Alexander Cabrera, president of PricewaterhouseCoopers Philippines (PwC), noted the country needs to increase the share of foreign direct investments (FDI) to keep the economy afloat.
“As long as the foreign direct investments continue to come in, and as long as interest rates remain stable, it could be very positive for the economy,” Neri said.