Peso hitting P58:$1 in 2019 ‘highly unlikely’ —Diokno

Budget Secretary Benjamin Diokno on Wednesday dismissed claims that the Philippine peso will sink against the greenback to P58:$1 in 2019.

“The fear that our peso will go down to 58 is totally unfounded, highly unlikely,” Diokno said in a breakfast forum in Pasig City.

The Budget chief was asked to comment on London-based think tank Capital Economics’ report that the peso will fall to P58 against the dollar in 2019 amid widening trade deficit due to the government’s infrastructure program that could exert pressure on the peso.

“Looking ahead, the trade deficit is likely to widen further as imports of capital goods continue to flood in to support Duterte’s infrastructure drive. We expect the peso to remain under pressure and are forecasting for it to reach 55 against the US dollar by year-end and 58 by end-2019,” Capital Economics said.

The surge in imports pushed the trade gap to $3.6 billion and sent the peso tumbling through 54 against the US dollar for the first time since 2005, the think tank noted in Emerging Asia Economics Weekly, issued on Friday, September 14.

The peso has now weakened by almost 8 percent against the dollar since the start of the year, making it one of the worst performing Asian currencies, Capital Economics said.

Diokno, however, said this is not the case as foreign direct investments and foreign tourists are coming in to boost the country’s dollar reserves.

Filipino firms are also investing abroad, he said.

The peso hitting P58-to-a dollar can only happen if there is some sort of contagion in the Philippines, which will discourage foreign investors and tourists, Diokno said. “Pwede ‘yun siguro kung wala nang pupunta rito, kung magkakaroon halimbawa ng SARS ... And they will be avoiding the Philippines.”

Union Bank chief economist Ruben Carlo Asuncion doubted the peso would sink to P58:$1 next year, as remittances from overseas Filipinos could boost the country’s dollar supply.

“For 2019, our forecast is 54.50, average, a far cry from 58,” Asuncion said.

But other more immediate concerns are exerting pressure on regional currencies, according to a separate report by Reuters. “The souring Sino-US relationship has also reduced investors’ risk appetite and exacerbated outflows from emerging markets, which have also been hit by rising US interest rates and fear of contagion from financial crises in Turkey and Argentina.”

The report noted that “the Indonesian rupiah and the Philippine peso have been emerging Asia’s biggest currency decliners so far this year. Delhi, Jakarta and Manila have raised interest rates to support their currencies, among other measures.”

It noted that confidence has ebbed in the Philippines, citing a poll by Thomson Reuters/INSEAD.

“Some in the Philippines were losing confidence, with its subindex sliding to 61 from 94. But survey participant Metropolitan Bank and Trust Co remained upbeat, citing the government’s infrastructure push and steps to contain inflation as the main reasons for the view.”

In a similar position on the infrastructure as Diokno’s, the report noted a comment from a representative of one of the survey participant.

“Any infrastructure expenditure is good for the economy. This creates economic activity. This will help grow businesses of all sizes,” Anna Dominique Cudia, from the bank’s investor relations department, said in an email. —VDS, GMA News