ANZ Research says peso to appreciate gradually vs dollar in second half

The peso will slowly appreciate against the dollar in the second half as the current account balance improves, ANZ Research said.

“We expect the currency to appreciate gradually over the second half of the year as the current account deficit starts to improve,” the research firm said in a note on Tuesday.

The local currency is seen to hit PHP 55 a dollar by September, before appreciating to PHP 54 by December.

“This is due to lower oil prices reducing the import bill, while growth in National Government capital outlay expenditure, a major driver of import demand, is also expected to moderate,” it added.

Based on data from the Bankers Association of the Philippines, the peso closed at PHP 55.52 versus the greenback on Tuesday, climbing by 22 centavos from Monday’s PHP 55.74 finish.

This is the peso’s strongest close in more than a month. Year to date, the peso has appreciated by 0.4% or 23.5 centavos from its PHP 55.755 a dollar close on December 29.

The country’s current account balance “appears to have improved” but “it is still not comforting,” according to ANZ Research.

The Bangko Sentral ng Pilipinas (BSP) recently lowered its balance of payment forecasts for this year and 2024. 

The current account deficit is now projected to reach USD 15.1 billion, or -3.4% of the gross domestic product (GDP), down from the USD 17.1 billion (-4% of GDP) forecast previously. 

The central bank also expects a narrower current account deficit of USD 15.4 billion (-3.2% of GDP) in 2024.

Based on central bank data, the country’s current account deficit was USD 4.3 billion or -4.3% of GDP in the first quarter, up from USD 4 billion a year ago, amid a wider trade-in-goods deficit. 

“The major boost to the current account recovery will be from service exports on the back of higher tourism and business process outsourcing revenues,” ANZ Research said. 

Latest data from the local statistics agency showed the country’s trade balance reached a deficit of USD 4.53 billion in April, lower than the USD 5.1-billion deficit a month earlier and the USD 5.32-billion gap last year.

Philippine exports declined by 20.2% to USD 4.9 billion in April, while merchandise imports fell by 17.7% to USD 9.43 billion.

“Additionally, inflation has been decelerating in recent months and the central bank is expected to maintain an extended pause over 2023,” ANZ Research said.

Inflation eased for a fourth straight month in May to 6.1% — the slowest in a year. Still, this was the 14^th straight month that inflation breached the BSP’s 2-4% target. 

For the first five months, inflation stood at 7.5%, still above the central bank’s 5.5% full-year forecast.

The research firm said it projects full-year inflation to reach 5.3% in the Philippines. This is still above the 2-4% target, but below the BSP’s 5.5% forecast. 

“The progress on inflation has been impressive in the Philippines, dropping by 260 basis points (bps) between January and May,” ANZ Research said.

Inflation reached a 14-year high of 8.7% in January.

The Philippine central bank is widely expected to keep benchmark interest rates steady at 6.25% on June 22, based on a  BusinessWorld poll of 15 economists last week.

This could be the second straight meeting the BSP will leave interest rates untouched. The BSP hiked policy rates by 425 bps from May 2022 to March 2023 to tame inflation. 

ANZ Research also expects the Philippine economy to grow by 5.8% this year, below the government’s 6-7% target. — Keisha B. Ta-asan