DBS sees P51:$1 forex in Q1 2018

MANILA, Philippines - DBS Bank Ltd of Singapore sees the peso depreciating to the 51 to $1 level in the first quarter of the year as it remains the worst performing currency in Asia this year.

In its Asian currencies mid-quarter update “USD is becoming oversold,” DBS said the local currency is seen touching 51 to $1 in the first quarter of 2018 and to further weaken to 51.3 instead of 50.9 to $1 in the second quarter.

DBS said it expects the peso to trade between 50.3 and 51.6 against the US dollar in the first quarter of next year from 50.6 to 51.9 in the second quarter.

The Singaporean bank sees the peso ending the third quarter at 50.4 instead of 50.2 to $1 and at 50.7 instead of 50.4 to $1 in the fourth quarter of the year.

The peso shed 2.1 percent as of end-July at 50.487 to $1.

“The PHP was the worst performing currency this year,” DBS said adding the peso rose to a high of 50 in the second half of June as it fluctuated between 49.3 and 50.4 in the first half. 

DBS said the record trade deficits by the Philippines continued to cancel out the steady growth in remittances from Filipinos abroad.

It added the Bangko Sentral ng Pilipinas (BSP) now expects the country to book a current account deficit of $600 million instead of a surplus of $800 million this year due to the widening trade deficit.

“BSP expects a current account deficit of $600 million in 2017, its first shortfall since 2002. BSP also expects the shortfall to widen further to $1.6 billion in 2018 due to record-wide trade deficits,” it said.

Inflation inched up to 2.8 percent in July from 2.7 percent in June due to higher utility rates and transport fare. It averaged 3.1 percent in the first seven months of the year, well within the two to four percent target set by the BSP.

“With inflation within its two to four percent target range, BSP saw no urgency to raise rates. Neither was it too concerned about the PHP’s depreciation on inflation,” DBS said. 

The Singaporean bank also noted that Moody’s Investor Service is monitoring signs of overheating in the Philippine economy, in particular, the re-emergence of the current account deficit and rising inflation.

The country’s gross domestic product (GDP) growth eased to 6.4 percent in the first quarter from 6.6 percent in the fourth quarter of last year due to weak private consumption with the absence of election-related spending.

“This view was rejected by the Department of Finance. Nonetheless, markets will continue to monitor the trade deficits which have not only widened to more than eight percent of GDP, but also looks set to overtake overseas foreign worker remittances,” DBS added.