The peso may further weaken against the US dollar this year, but it will not be enough to trigger a spike in key policy rates, economists from Bank of the Philippine Islands (BPI) said.
They said the Philippines would continue to be one of Southeast Asia’s top performers.
This year, BPI does not expect the Bangko Sentral ng Pilipinas (BSP) to undertake the usual monetary tightening as it used to, particularly now that the US Federal Reserve has scaled back its aggressive monetary stimulus, which buoyed global liquidity in the past few years.
“Our central scenario on BSP policy rates remains neutral through end-2014 with a rising probability of a mild SDA (special deposit account) rate hike,” according to a research team led by BPI economist Emilio Neri Jr.
The team recently came out with a report titled “Philippines and the Economy: Competitive, Not Weak.” This may be the first time when Philippine growth will exceed 6 percent just as the peso declines faster than the 5-percent depreciation against the US dollar last year.
The US dollar is expected to appreciate through May as most emerging markets adjust to the reality of the Fed tapering. But a mild rebound will help bring the exchange rate back to 45.40 by the end of 2014, the report said.
BPI expects the US dollar to gain by 2-4 percent against the peso this year versus a 5-7 percent average gain against emerging market currencies.
Unlike previous depreciation episodes, both private and public sector continue to enjoy access to peso funds, countering any reduction in resources arising from this emerging market shakeout, the report said.
The report said “very aggressive and destabilizing” monetary tightening responses would not take place because of the country’s current account surpluses and the size of the gross international reserves relative to national external debt.
“The recent slide of the peso should in no way cause policymakers to worry. It should be viewed as a chance to gain price competitiveness for our export sector, BPOs (business process outsourcing) and overseas Filipinos … vis-à-vis the rest of the world,” the research said.
BPI expects the country’s growth to continue at a healthy pace, allowing the Philippines to maintain its “pole position” in Southeast Asia.