Economists Weigh in on Peso’s Resiliency in 2021

An economist expects the Philippine peso to remain strong against the greenback on account of resilient domestic fundamentals but another economist forecasts it to weaken due to slower remittance growth and recovery on imports.

Rizal Commercial Banking Corporation (RCBC) senior economist Michael Ricafort said the peso, to date, continues to stand its ground given the combination of strong domestic fundamentals and lesser import requirements on account of lower demand due to the pandemic.

This Friday alone, he said the peso posted its over two-week high close of 49.92 against the greenback, which is also one of its strongest levels in the last two years.

Ricafort attributed the unit’s appreciation during the day to the fresh 50 basis points reduction in the Bangko Sentral ng Pilipinas’ (BSP) key policy rates on Thursday, a decision made to further support the domestic economy from the impact of the pandemic.

He said the local currency has already appreciated by 1.4 percent compared to its 50.635 close against the US dollar at the end of last year.

He partly attributed the peso’s appreciation in recent months to lower imports because of the lockdown implemented since mid-March to arrest a big jump of coronavirus disease (Covid-19 ) infections.

The drop in imports, he said, lessened the need to purchase US dollar so it is a plus for the peso.

“The peso exchange rate could end 2020 at the range of 49.50-50.50,” he said in a reply to e-mailed questions from PNA.

Other plus factors for the peso this year include rising global oil prices, which is seen to help narrow the country’s trade deficit; the possible recovery of the domestic economy in the latter half of the year; the record-high foreign reserves; and the upgrade of the country’s credit rating, with the Japan Credit Rating Agency (JCRA) elevating its rating on the country from BBB+ to A- on the belief that the domestic economy will remain resilient even after the pandemic.

“These reflect the Philippines’ improved economic and credit fundamentals, as well as improvements in fiscal performance in recent years that could help attract more international investments and international credit/loans at much lower cost into the country, in view of the need to finance Covid-19 programs and other economic stimulus measures needed to help sustain the economic recovery after Covid-19, thereby could further help boost the country’s GIR to new record highs, going forward,” he added.

On the other hand, ING Bank Manila senior economist Nicholas Mapa, in a reply to queries from PNA, said he expects the peso to weaken in the remaining months of the year partly due to the projected drop of remittance inflows.

BSP data show that cash remittances last March reached USD2.4 billion, higher than the previous month’s USD2.358 billion but lower than year-ago’s USD2.514 billion.

In the first quarter this year, remittances grew by 1.4 percent to USD7.403 billion, lower than the 4.2-percent expansion it registered the same period last year.

Monetary authorities expect remittance growth to contract by 5 percent this year, a turnaround from the 3-percent growth projection earlier, due to job losses among overseas Filipino workers (OFWs).

Mapa said another risk factor for the peso this year is the projected recovery of imports in the second half of the year as the government’s priority Build, Build, Build program gains traction.

“PHP (The Philippine peso) could settle at 52.06 by year-end,” he added. (PNA)