Trade gap may weaken peso to 54:$1 this quarter

Despite the Philippine peso strengthening and approaching P51:$1 in the past few days, ING Bank expects the local currency to once more breach the P52:$1 mark within a month and even weaken beyond the P54:$1 mark in the next three months.

Nicholas Mapa, ING Bank’s senior Philippine economist, said in a commentary the peso “slid considerably” in March due to expectations for a much wider trade deficit.

In 2021, the Philippine’s full-year deficit in the trade of goods widened by 75 percent to $43.1 billion from $24.6 billion in 2020.

In 2022, as of January, the balance of trade in goods was pegged at $4.7 billion, widening by 63 percent from $2.9 billion in the same month last year.

Still, Mapa observed that the peso managed to hold steady toward the end of March as sentiment improved on hopes of a resolution to the conflict between Russia and Ukraine.

“Meanwhile, the Bangko Sentral ng Pilipinas (BSP) decided to retain its dovish bias to support growth,” the economist said. “Inflation, however, is forecast to move past target again this year as energy prices soar.”

BSP data show that the peso breached the $52:$1 mark last March 8 at P52.06 against the US dollar and recrossed the line on March 31 at P51.96 against the greenback.

In parallel, the peso traded on the spot market at P52.18 last March 7 and at P51.74 on March 31.

On Wednesday, the BSP recorded the exchange rate at P51.26 per US dollar. As of this writing, the peso was trading on the spot market within the range of P51.25 and P51.44 to the dollar.

“We expect [the Philippine peso] to remain susceptible to depreciation spells as dollar demand stays elevated to cover rising import requirements,” Mapa said.