MANILA,Philippines — MUFG Bank Ltd., Japan’s largest bank, expects the Philippine peso to depreciate slightly next year as government spending starts to recover from a sluggish pace in the first half.
In a press briefing, Leong Sook Mei, ASEAN head of Global Markets Research for MUFG, said the peso could weaken at 52 to $1 level next year.
“The peso is depreciating not on a negative factor. It’s because of the growth factor, government spending, infrastructure spending. So we still expect the peso to depreciate,” Leong said. “We are thinking the peso will be around the 51 to 52 to $1 level for next year.”
In particular, forecast from MUFG’s Economic Research Office and Global Markets Research showed that the peso is projected to settle at 51 to $1 by the end of the year, before weakening to 51.50 in the first quarter, 52 by the second quarter and 52.50 to $1 in the third quarter of next year.
According to Leong, the peso’s performance would be underpinned by the country’s current account (CA) deficit, which is expected to widen next year following the recovery in government spending, particularly for infrastructure.
“For this year, the CA deficit is pretty low because a lot of the spending on infrastructure was held back in the first half, and now we’re only seeing it in the second half. So fundamentally, we may see an expansion in the current account deficit next year, which is negative for the currency,” Leong said.
However, Leong said the peso’s depreciation would be cushioned by the low oil prices, the country’s strong foreign exchange reserves, as well as the expected weakening of the dollar.
“The positive point for the peso is also the fact that oil prices are benign. And we continue to expect oil prices to be benign next year,” Leong said.
“The other positive is the fact that you have very strong buffers from OFW remittances which is continuing to be very strong, and of course the BPO sector,” she said.
The peso has strengthened back to the 50 to $1 level amid the drop in imports over the past few months as a result of government underspending.
For the first half, the current account deficit likewise thinned to $1.74 billion from $3.75 billion in the same period last year.
The BSP expects a record current account deficit of $10.1 billion this year, 27.8 percent wider than the $7.9 billion shortfall recorded last year.
The projected deficit is equivalent to 2.8 percent of gross domestic product for this year.