Peso seen to track regional appreciation vs dollar starting 2024

MANILA  -The Philippine peso is pointed toward a path of appreciation from an expected 55:80:$1 at the end of this year to 55:$1 by the end of next year and further to 53:$1 by the end of 2025, according BofA Securities (BofAS).

Bank of America’s investment banking division said in a research note that the local currency was expected to strengthen against the US dollar along with the regional appreciation trend.

However, BofAS also said that such an outlook was under the burden of wide fiscal and current account deficits.

Still, the peso has remained relatively stable so far throughout 2023, thanks to a combination of government funding and banking system flows.

“This would continue toward year-end on proposed US dollar(-denominated) green sukuk issuance and remittance flows ahead of Christmas,” BofAS said.

On Nov. 27, the Bureau of the Treasury announced the engagement of bookrunners and managers for the maiden issuance of a 5.5-year sukuk or Shari’ah-compliant trust certificate.

For this proposed issuance, Moody’s Investor Service has assigned a rating of “Baa2” and Fitch Ratings rated it “BBB.” Both credit raters said these reflected the Philippine government’s own rating as a long-term borrower.

“BSP’s (Bangko Sentral ng Pilipinas) hawkish bias has also supported (the peso) against further narrowing of interest-rate differentials,” BofAS said.

BSP-Fed rates gap

The group was referring to the gap between the BSP’s policy rate of 6.5 percent and that of the United States Federal Reserve, ranging from 5.25 percent to 5.5 percent.

This spread is currently at 1.25 to 1.5 percentage points.

The peso “would likely follow the regional appreciation trend next year to 55:$1 by end-2024, but may be constrained by less attractive valuation and risks of premature dovish turn which may limit the widening in interest-rate differentials,” BofAS added.

The BSP is widely expected to start reducing its policy rate by the third quarter of 2024.

As of Nov. 28, the peso has been trading between 55:$1 and 56:$1 for the ninth consecutive business day.

The peso-dollar exchange rate started the year at 55.79:$1 on Jan 3, dipped to as low as 53.68:$1 in February and rose to as high as 56.98:$1 in September.