Peso weakness vs dollar to persist, says MUFG

THE PHILIPPINE PESO would probably continue to weaken in the near term given the country’s high current account deficit and a dovish central bank, according to MUFG Global Markets Research.

In a report, it said it expects the peso at PHP 54.40 a dollar by the first quarter of 2024, weaker than its earlier forecast of PHP 54.

The currency is likely to weaken to PHP 55.30 a dollar by the second quarter this year, worse than its previous outlook of PHP 55 and the peso’s close of PHP 54.36 at the end of March.

By the end of the third quarter, the peso could strengthen to PHP 55 a dollar before closing at PHP 54.80 by yearend.

MUFG earlier saw the peso finishing the third quarter at PHP 54, and the year at PhP 53.50, before closing at PHP 53 at the end of March 2024 against the greenback.

“We continue to think that the Philippine peso will underperform Asian currencies given its relatively high current account deficit, coupled with a more dovish central bank,” it said.

The country’s current account deficit widened to USD 17.8 billion last year, higher than the USD 5.9-billion shortfall a year earlier amid a wider trade in goods deficit.

The Bangko Sentral ng Pilipinas (BSP) has said it expects the current account deficit to narrow to USD 17.1 billion.

Central bank Governor Felipe M. Medalla said last month the Monetary Board might consider pausing its tightening cycle at its May 18 meeting if inflation eased further in April.

The Monetary Board last month hiked benchmark interest rates by 25 basis points (bps) to help bring down inflation, bringing its key rate to a 16-month high of 6.25%. The central bank has raised borrowing costs by 425 bps since May 2022.

The BSP said last week April inflation likely settled within 6.3-7.1%, slower than 7.6% in March. It could surpass the BSP’s 2-4% target for the 13^th consecutive month.

Still, the lower end of the forecast will match 6.3% in August 2022 and will be the slowest in 10 months.

MUFG said core inflation, which excludes volatile food and fuel prices, remains sticky even if inflation has come off.

Core inflation quickened to 8% in March from 7.8% in February and 2.2% a year earlier. This was the highest in 22 years.

The Philippine Statistics Authority is scheduled to release inflation data on Friday.

The peso closed at PHP 55.335 a dollar on Wednesday, up by 0.50 centavo from its Tuesday close, according to data from the Bankers Association of the Philippines. — By Aaron Michael C. Sy