Peso seen rising to 42.30 to $1 in Q3

The peso is expected to appreciate to 42.30 against the dollar in the next three months amid confidence that monetary authorities would not intervene in the foreign exchange market, according to Barclays Capital.

The investment bank said in a new research note that the forecast was made “given supportive balance-of-payments [BOP] dynamics and also the central bank’s willingness to allow currency appreciation to lean on imported price pressures.”

Earlier this month, the Bangko Sentral ng Pilipinas reported that the BOP—the difference between inflows and outflows of foreign currencies—stood at a surplus of $1.08 billion in April, up 7 percent from the $1.01 billion in the same month last year.

This brought the surplus in the first four months of the year to $4.58 billion—doubling the $2.29 billion registered in the same period a year ago.

The BSP said the surplus would further boost the country’s foreign exchange reserves, which had been hitting record levels in recent months.

Barclays Capital said the Philippine budget deficit was likely to settle at P275 billion or even lower this year instead of the government’s forecast of P300 billion.

The government reported a budget surplus of P26.3 billion in April, which brought the January-April fiscal position to a surplus of P61 million.

“Overall, our sense is that the budget deficit will likely surprise on the downside, and our forecast stands at P275 billion, which is just under 3 percent of gross domestic product,” the bank said.

“We believe the risks to our forecast are biased to the downside,” it added. “We note that the government is also studying measures to boost revenues, such as indexing tax on beer and tobacco to inflation as well as simplification of the tax structure.”

Given its outlook on the peso, Barclays Capital reiterated its recommendation to buy the global peso note (GPN) that matures in 2036.

“For investors who are constructive on the peso, the GPN position can be held foreign exchange unhedged to boost potential total returns,” the bank said.