Peso under pressure to weaken further

The Philippine peso closed at 53.75 against the US dollar on Friday, its weakest position in three years and eight months since landing at 53.80 to the dollar in October 2018.

This came just a week after the peso broke above the 53:1 level and appears to confirm expectations that the local currency will remain on a depreciation path.

Michael Ricafort, chief economist at Rizal Commercial Banking Corp., said the U.S. dollar strengthened further after the U.S. Federal Reserve on June 15 again raised the U.S. federal funds rate by 75 basis points, the biggest increase since 1994.

“The peso was also weaker after the decline in the PSEi [on Friday]down for the second day in three days, down -61.45 points or -1% to close at 6,331.56,” Ricafort said.

This was a new low in 10 months or since August 13, 2021, and partly matched overnight declines in US and global stock markets.

Balance of payments deficit

Growing depreciation pressure stems from heightened external risks and projections that the balance of payments (BOP) deficit will widen to $6.3 billion by year-end from $4.3 billion as planned last March.

The Bangko Sentral ng Pilipinas (BSP) reported that at the end of March, the BOP surplus reached $495 million, held up by the stock of foreign exchange.

The first quarter balance of payments surplus meant a reversal of the $2.8 billion deficit recorded in the same period of 2021, as well as a 75% drop from the $2 billion surplus. dollars from the previous period, from October to December 2021.

“The emerging balance of payments outlook for 2022 and 2023 remains quite cautious given the recent accumulation of external risks,” said Zeno Ronald Abenoja, director general of BSP’s economic research department.

At a press conference, Abenoja noted the deterioration in global growth prospects following the escalation of the Russian-Ukrainian conflict and its international ramifications, in particular the increase in food and fuel prices.

Risk exposure

The expected slowdown in the Chinese economy could also put pressure on the trade outlook,” he said. “Meanwhile, capital flows could be particularly volatile following the abrupt normalization of monetary policy in the United States and other major economies.”

With that, UK-based think tank Oxford Economics said on Friday that the Philippine peso is likely to remain weak due to high inflation and the wider trade deficit caused by expensive oil imports.

“We expect any recovery in the exchange rates of the current-deficit economies – India, Thailand and the Philippines – to be limited, as we expect oil prices to remain above $110 for the rest of the year. of the year, with external deficits in India and the Philippines, particularly expected to widen in the second half of the year,” said Sian Fenner, Oxford Economics chief economist for Asia-Pacific, in a report.

Oxford Economics said this meant the peso and rupee would be “more exposed to downside risk” among regional currencies.

BSP data shows that in the first quarter, the Philippines paid more for imported goods than for exports, with a current account deficit of $4.8 billion.

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