PHL peso to fare better than peer currencies, say analysts

The peso-dollar exchange rate ranged from P44.06:1$ to 45.065 in the first quarter of the year and settled at P44.58:$1.

In a research note, MetisEtrade Inc. research analyst Guaya Yroen Melgar said the peso has been steady as investors anticipate the Fed’s decision.

"While a rate hike would stimulate money flows back to the US and increase demand for the greenback, the Fed has been clear in its decision to keep rates steady, at least until the June meeting," she said.

The Fed started scaling back its $85-billion monthly bond purchases in January 2014, and the program last October.

The Philippine economy is supporting the peso, Melgar noted.

Last year, the Philippine gross domestic product (GDP) grew by 6.1 percent.

But depreciation is the order of the day in light of the Fed rate hike, Bank of the Philippine Islands lead economist Emilio Neri Jr. told GMA News Online.

BPI is forecasting the peso trade at 45:$1 in the second quarter, 45.50:$1 in the third quarter and 46:$1 in the last quarter.

"The weakness is in line with the policy normalization in the US. But the depreciation will not be the same as the taper tantrum in 2013, when the peso depreciated by 8 percent," Neri said.
 

Two factors

Despite such givens, the peso will still outperform other Asian currencies, according to the economist.

Year-on-year, the peso shed a mere 0.1 percent as of March 27, Neri noted.

This compares with the 13 percent depreciation of the Indonesian rupiah, the 8 percent decline of the Singapore dollar, the 7 percent loss of the Indian rupee, and the 4 percent drop of the Thai baht.

"The peso will actually outperform on two factors. First is the country's GDP growth, which is faster than peers. This year, we expect at least a 6.5 percent growth," Neri said.

The Bangko Sentral ng Pilipinas (BSP) has been very vocal about its policy plans, which also supports the peso, the economist said.

"They're not going to be copying everyone else. It gives a lot of support to the peso because there's clear signal from the BSP," he added.

Last March, after the Fed raised the possibility of a rate hike in June, Bangko Sentral ng Pilipinas (BSP) chief Amando Tetangco Jr. said the central bank will keep an eye on inflationary pressures.

There are also seasonal events that will help steady the peso against the dollar, Metropolitan Bank & Trust Co. research head Ildemarc Bautista said in another interview.

"There's a push-and-pull between economic developments relative to the peso, versus volatility in the dollar," he said.

"[But] it should strengthen in second quarter because of inflows associated with the start of school season," Bautista said.

"In the fourth quarter, it should strengthen because of OFW remittances," he added. – VS GMA News