Peso seen further strengthening vs dollar in 2021
The Philippine peso would further strengthen this year although at a slower pace than last year’s gains amid expectations of sustained US dollar weakness, the UK-based Oxford Economics said.
The peso, the Indian rupee, and the Indonesian rupiah were expected to appreciate against the greenback in 2021 as they would benefit from growing risks coming from the United States’ twin deficits—budget and current account balances, Oxford Economics economist Sung Eun-jung said in a Feb. 18 report titled “Stronger macro boost to rupee, rupiah and peso.”
Following an over 5-percent gain in 2020, Oxford Economics sees the peso appreciating by more than 2 percent this year.
“The peso rallied last year due to a significant improvement in the current account balance,” it noted, referring to the surplus projected to be equivalent to 3.3 percent of gross domestic product (GDP) as of end-2020.
A slump in goods import amid a pandemic-induced recession kept US dollars in the central bank’s reserves unspent, making the domestic currency stronger.
Last month, Oxford Economics projected the Philippines’ current account to stay at a surplus—although narrower—equivalent to 1.1 percent of GDP this year and 0.2 percent next year.
“After a significant improvement last year, we expect the current account balance to worsen for all three economies in 2021 as imports start to pick up from a low base,” it said, referring to India, Indonesia and the Philippines.
“We still forecast the Philippines to retain its current account surplus, which will benefit the peso. But the peso is likely to appreciate less than last year, when the current account balance improved by around 4.8 percentage points,” it said.
Oxford Economics said “foreign exchange reserves data for the Philippines and Indonesia hint at less intervention by the authorities, and we expect them to let their currencies appreciate this year in line with the macro fundamentals.”
Since real interest rates in the Philippines and India are currently negative following last year’s string of rate cuts, Oxford Economics expects their central banks to keep key rates steady in 2021 and 2022.
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