Peso under pressure to further weaken

The Philippine peso closed at 53.75 against the US dollar on Friday, its weakest position in three years and eight months since landing at 53.80:$1 in October 2018.

This happened just a week after the peso breached the 53:$1 level, and appears to confirm expectations that the local currency will remain on a depreciation path.

Michael Ricafort, chief economist at the Rizal Commercial Banking Corp., said the US dollar has strengthened further after the US Federal Reserve on June 15 again raised the US federal funds rate by 75 basis points—the biggest hike since 1994.

“The peso was also weaker after the PSEi declined [on Friday], down for the second day in three days, by -61.45 points or -1 percent to close at 6,331.56,” Ricafort said.

This was a new 10-month low or since Aug. 13, 2021, and was partly in line with the overnight declines in the US and global stock markets.

BOP deficit

Increasing depreciation pressure is coming from heightened external risks and projections that the balance of payments (BOP) deficit will widen to $6.3 billion at the end of the year from $4.3 billion as forecast last March.

The Bangko Sentral ng Pilipinas (BSP) reported that as of the end of March, the BOP surplus reached $495 million, kept aloft by the stock of foreign currency.

The first-quarter BOP surplus meant a reversal from the $2.8-billion deficit recorded in the same period of 2021, and also a 75-percent drop from the $2-billion surplus in the previous period—October to December of 2021.

“The emerging BOP outlook for 2022 and 2023 remains quite circumspect in view of the recent buildup in external risks,” said Zeno Ronald Abenoja, managing director of the BSP’s economic research department.

In a media briefing, Abenoja noted the downgraded global growth outlook following the escalation of the Russia-Ukraine conflict and its international ramifications, especially the increase in food and fuel prices.

Risk exposure

The anticipated slowdown of China’s economy could also put pressure on trade prospects,” he said. “Meanwhile, capital flows could be particularly volatile following the abrupt monetary policy normalization in the United States and in other major economies.”

With this, the United Kingdom-based think tank Oxford Economics on Friday said the Philippine peso would likely remain weak due to high inflation and the wider trade deficit wrought by expensive oil imports.

“We expect any recovery in the exchange rates of current account deficit economies —India, Thailand and the Philippines—to be limited, as we forecast oil prices to remain above $110 for the rest of the year, with external deficits in India and the Philippines particularly set to widen in the second half,” Oxford Economics lead Asia-Pacific economist Sian Fenner said in a report.

Oxford Economics said this meant that the peso and the rupee will be “more exposed to the downside risks” among regional currencies.

BSP data show that in the first quarter, the Philippines paid more for imported goods that earned from exports, with a current account deficit of $4.8 billion.