BofA stays neutral on peso

MANILA, Philippines  —The research unit of Bank of America (BofA) has kept its “neutral” view on the peso, which is forecast to average at 55 against the greenback by the fourth quarter of 2024.

In a commentary sent to journalists on Thursday, BofA Global Research said the peso’s “fundamental outlook remains a concern but is improving from that in 2023.”

“The fundamental outlook is weak, given twin deficits but less so compared with the last few years,” the BofA unit said.

“While capital flows could be adequate to cover the overall BoP (balance of payments) for the year, PHP remains more exposed to the broader USD strength and risk sentiment,” it added.

Since the beginning of the year, the peso has weakened by 1.6 percent and has been flirting with the 55 and 56 levels.

READ: Peso seen to track regional appreciation vs dollar starting 2024

BofA’s projection matched the low end of the forecast of the Marcos administration, which expects the peso to average between 55 and 58 this year.

Peso-dollar outlook

The forecast also assumes that the peso will outperform the Chinese yuan, Thai baht and Vietnamese dong which, BofA said, may turn “bearish” in 2024.

Latest data from the Bangko Sentral ng Pilipinas (BSP) showed the Philippines posted a dollar position deficit of $740 million in January, a reversal from the $3.1-billion surplus a year ago.

READ: PH dollar position back to deficit in Jan–BSP

This year, the central bank forecasts a dollar surplus of $400 million, smaller than the previous projection of $1-billion excess on expectations of bigger dollar outflows from a wider trade deficit.

BofA said the recent sale of Retail Treasury Bonds (RTBs)—which also attracted demand from investors offshore—likely provided more capital flows that could support the peso.

However, the repayment of an estimated P700 billion in maturing RTBs in March could trigger dollar outflows that may add some pressure on the local currency.

Moving forward, BofA said potential rate cuts this year bode well for government bonds—the main source of inflows that would support the peso.

“PHP remains dependent on capital flows and the BSP’s reaction function to determine the price action,” the bank said.