Regional economists see tough times ahead for PHL peso

The Philippine peso is expected to remain weak the rest of the year as regional currencies reel from the winding down of the United States Federal Reserve's massive bond-buying program that will likely start in September as the US economy improves, economists said. 

 

“The peso is very resilient. But even the peso with its good story will be under pressure,” Prakriti Sofat, Singapore-based economist at Barclays Plc, said during the Bloomberg Summit in Makati City late Thursday. 

 

Financial volatility that followed uncertainty over the Fed's winding down of stimulus has weakened regional currencies, with the Indian rupee, Indonesian rupiah and Turkish lira leading a free fall.  

 

In an interview with GMA News Online on the sidelines of the summit, Bloomberg LP senior economist in Singapore Tamara Mast Henderson said there remains “some scope” for the peso to further weaken. 

 

“One concern if you look at Asia.... the Philippine currency on a REER (Real Effective Exchange Rate) basis is one of the strongest,” she said, referring to the peso's strength relative to the basket of regional currencies. 

 

As the US economy improves and yields go higher, speculations over the Fed's possible moves prompted speculative funds — also called hot money — to move out of emerging markets, pushing the peso near three-year lows. 

 

“When we were talking about how much of the correction has happened, on average, maybe 80 percent. But for the Philippines, there might be more,” Henderson noted. 

Current account deficits

 

Economists at the forum, however, said the Philippines and its currency are still better positioned to face external headwinds than other countries wracked with current account deficits in the region. 

 

“The current accounts have been a key issue, with the cost of funding having been strained,” Dominic Bunning, associate for Foreign Exchange Strategy at HSBC Holdings Plc (Hong Kong) noted. Such is not the Philippine case, Bunning said. 

 

The Philippines still has nearly $83 billion in reserves, enough to cover a year's worth of imports. 

 

“You still have a very strong current account surplus and the credibility of policy makers here is strong,” said Barclay's Sofat. 

 

But Bloomberg's Henderson said, “The fundamentals are very strong in the Philippines. But the market is not focused on that... it's focused on fear.”

 

Philippine officials at the forum assured that the country is ready to face volatility. 

 

“Our macroeconimc program has accounted for that and has flexibility,” said Gil Beltran, chief economist and Undersecretary at the Finance Department, noting that officials “have long put the Fed's easing in the macroeconomic background.”

 

In his keynote speech at the forum, Bangko Sentral ng Pilipinas Deputy Governor Diwa Guinigundo said, “There is no doubt that these issues require our attention and preparation for any eventualities. The Philippine economy has its policy tools that will allow us to appropriately respond...,” he noted. 

 

Despite the peso's weakening bias, Sofat said, “It will still outperform other regional currencies.” — VS, GMA News