Economists see stronger peso this year

MANILA, Philippines — Bank economists expect a stronger peso amid the dovish sentiment by the Bangko Sentral ng Pilipinas (BSP) as well as external factors led by the US-China trade war.

According to Robert Dan Roces, chief economist at Security Bank Corp., the peso may settle at an average of 53 to $1 in the second quarter and at 53.50 by the third and fourth quarters.

Roces now expects a stronger peso versus his earlier forecasts of 53.50 to $1 by the end of the second quarter, 54 to $1 by the end of the third quarter, and 54.50 to $1 in the fourth.

Roces cited the pro-growth stance of Bangko Sentral ng Pilipinas Governor Benjamin Diokno as well as easing inflation and the slower-than-expected gross domestic product (GDP) growth in the first quarter.

Inflation eased for the six straight month to hit a 16-month low of three percent in April after peaking at 6.7 percent in September and October. It accelerated to 5.2 percent last year from 2.9 percent in 2017, exceeding the BSP’s two to four percent target that resulted in a tightening episode that saw interest rates rise by 175 basis points in 2018.

Likewise, the central bank has also slashed the reserve requirement ratio for big and mid-sized banks by 200 basis points and that of small banks by 100 basis points that is expected to release about P210 billion worth of additional funds into the financial system.

Roces said the BSP may further slash interest rates as well as the level of deposits banks are required to keep with the central bank in the second half.

 “With policy moves out of the way, the narrative will shift toward the US-China trade war,” Roces said.

On the other hand, ING Bank senior economist Nicholas Mapa said the peso continued to fare better despite the current dovish bias by monetary authorities.

“The peso has continued to outperform regional peers. BSP’s ability to communicate its policy bias to the market has gone a long way to helping keep the currency stable despite the dovish bias,” Mapa said.

With market believing inflation to be tame and BSP not behind the curve, Mapa said further easing moves by the BSP may be welcomed should they be communicated effectively to the market.

Mapa said the timing of the reduction of interest rates and RRR level had more weight in foreign exchange performance.