Peso seen stabilizing as GDP numbers improve

THE LOCAL currency is expected to stabilize later this year as growth prospects improve and dollar earnings rise, one of the country’s leading banks said.

Metropolitan Bank & Trust Co. said domestic sources of strength would help offset external stresses that have weighed on local financial markets.

“Emerging Asian currencies, including the Philippine peso, have recently been on the firing line amid a number of developments in the global economy,” Metrobank said in a note to clients.

The peso in the past two weeks was weighed down by China’s and Vietnam’s separate moves to devalue their respective currencies, aimed at boosting their flagging export sectors.

This comes ahead of the US Federal Reserve’s expected decision to hike interest rates by September or December of this year, a move that is seen triggering capital outflows from emerging markets like the Philippines.

Amid uncertainties overseas, the peso ended last week at a five-year low of 46.50-to-$1, from its previous close of 46.35: $1.

Metrobank said cheap fuel prices may provide a reprieve for the peso, as this tempers demand for foreign currency liquidity needed to pay for imported goods.

“Also, the surge in overseas Filipino workers’ remittances in time for the holiday season and a potentially good second half gross domestic product numbers on election-related spending would support the local currency,” Metrobank said.

Metrobank said it recently revised its yearend forecast for the exchange rate to P45.50 from a previous forecast of P44 given recent external developments.

The coming months will however be volatile, especially for emerging market currencies like the peso, the bank said, as depreciation pressure builds up on expectations of US Fed rate hikes starting this year.

In a separate report, think tank Capital Economics said even as currencies in the region lose value against the US dollar, Asian economies are now better equipped to deal with external issues.

“There are more differences than similarities between the situation now and the position many Asian countries found themselves in 1997-98,” the firm said, citing flexible currencies, high levels of reserves and lower levels of foreign debt.

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