UBS economist: Peso may slide to 54:$1 by end-2018

The peso could further weaken against the dollar to a fragile P54:$1 by end-2018 all the way to 2019, a top economist from UBS said.

Edward Teather, senior US economist for Southeast Asia, said rising US interest rates could put more pressure on the local currency. “The Philippines is perhaps more vulnerable to rising US yields than most Asian nations because of the presence of some overheating pressures.”

The economist expects the Philippines to sustain a fast gross domestic product (GDP) growth rate of 6.9 percent next year as the government executes its “build, build, build” program. For 2019, UBS said growth could ease slightly to 6.5 percent.

To curb “overheating” pressures, the Bangko Sentral ng Pilipinas (BSP) would likely hike key interest rates by a total 75 basis points next year, the economist added.

Besides the big boost from the “ambitious” tax reform program, the country’s economic expansion should be supported by a wider fiscal deficit of 3 percent of the GDP next year from around 2.4 percent this year, the economist added.

“Fiscal policy is likely to be inflationary in 2018. First, the tax reform package should yield an administrative increase to inflation, which we see as rising to 3.8 percent year-on-year in 2018, toward the top of BSP’s target range, before slowing to 3.4 percent year-on-year in 2019 as base effects from tax reform roll out,” Teather said.

Teather said trends in investment rates and working-age population growth implied a potential real GDP growth in the Philippines of between 6 percent and 6.5 percent.