Security Bank sees peso weakening to 52 to $1 in 2022

MANILA, Philippines — Security Bank Corp. expects the peso weakening further to 52 to $1 next year amid the growing demand for the dollar as the Philippine economy gradually reopens.

Robert Dan Roces, chief economist at Security Bank, said pain points to watch out for next year include the presidential and national elections in May, the series of interest rate hikes by the US Federal Reserve, the widening trade deficit in the country, as well as rising global commodity prices.

“All these events point to a stronger dollar. So foreign exchange is expected to end 2022 at 52 to the dollar,” Roces said.

The economist said the 52 to $1 is the baseline and initial forecast for the moment.

“The foreign exchange space is very hard to predict. We never expected it to hit the 49 levels again this late in the game, ,but it did. So next year, with the hike of the Fed, we could be expecting a stronger dollar response. So what that means is for the peso to weaken as well,” Roces said.

Since the start of 2021, the peso depreciated against the dollar by a total of 4.2 percent or P1.997 versus the end-2020 level of 48.023 to $1.

From the four and a half-year-year low of 47.61 intraday low posted last June 1, the local currency has depreciated by 5.1 percent or 2.41 in more than six months.

According to Roces, the export sector is expected to expand by  eight percent next year from the projected seven percent this year, but the sector may  still be affected by elevated shipping costs and supply-chain constraints.

Likewise, he said China is facing a fading growth potentially affecting external demand for Philippine-made goods, including agricultural exports, thereby suppressing export growth potential.

On the other hand, Roces said imports would book a double-digit growth next year from the projected nine percent this year due to rebounding domestic demand.

However, Roces warned the country is still facing high commodity prices because of global demand upsurge, resulting in additional inflationary pressures.

“Importers will have to meet the demand so they will likely look for more dollars to finance their operations, of course they are going to source it locally. So there is going to be higher demand locally for US dollars and what that points to is the depreciation of the peso,” Roces said.

The economist said oil prices are expected to remain elevated next year as demand may exceed pre-pandemic level on a gradual trajectory.

According to Roces, global oil production is expected to see a robust recovery as the Organization of the Petroleum Exporting Countries (OPEC) continues to unwind their production cuts next year.

Just like the World Bank, Roces said Security Bank sees crude oil prices averaging $74 to $76 per barrel next year before declining to $65 per barrel in 2023 as global output recovers and demand stabilizes.

Roces said remittances from overseas Filipino workers (OFWs), a major source of foreign exchange, may grow by five percent to $32.2 billion next year after rising by six percent to $31 billion this year.

Roces said Security Bank is recommending hedging to manage any adverse or unfavorable movements in commodity prices.

“ We are  recommending hedging   for most of our clients because they could be able to lock in the current rates relative to how volatile next year could be for the foreign exchange base,” Roces said.

He said hedging is the better option at the moment.

Security Bank sees the country’s gross domestic product (GDP) rebounding strongly with a growth of 5.1 percent for this year and 6.5 percent for next year after shrinking by 9.6 percent last year due to the impact of the COVID-19 pandemic.