US rate hike not Brexit impacting on PHL peso — Bloomberg survey

The likelihood of an interest rate hike in the US this year is the primary macro issue affecting the Philippine peso, according to results of a Bloomberg survey released Tuesday.

Bloomberg, a global new and financial information organization, which polled foreign exchange executives (FX) in the Philippines found that Brexit—the United Kingdom's withdrawal from the European Union—was not an issue affecting the local currency.

"Fed policy will have direct implications on financial markets by way of capital market reversal, a force more powerful than the limited impact of our trade relations with the UK," Nicholas Antonio Mapa, associate economist at the Bank of the Philippine Islands, told GMA News Online.

"Fed rate hike appears to be more apparent, with the Federal Open Market Committee (FOMC) possibly hiking by the end of the year. Brexit has yet to happen and may only be possibly triggered by Article 50 sometime in first quarter of 2017," Mapa added.

A member state may decide to withdraw from the union in line with its own constitutional requirements, according to Article 50 of the European Union Treaty.

For his part, Guian Angelo Dumalagan, market economist at the Land Bank of the Philippines noted the Philippine interest rate advantage narrows as a result of another US rate hike as some investors might decide to pull out their funds which could lead to the peso's depreciation.

The findings were an offshoot of a Bloomberg Foreign Exchange 2016 Symposium in Manila headlined by Bangko Sentral ng Pilipinas Gov. Amando M. Tetangco Jr.

"With the economy of the Philippines on a strong growth trajectory, our poll reinforces the optimism market participants hold as it pertains to the outlook of its currency and economic prospects," Bloomberg's Asia Pacific Currencies FX Business Strategy Lead Grant Coombe said in a statement.

According to Bloomberg, more than 220 foreign exchange bankers, traders, brokers, and corporate treasurers convened to discuss the challenges and opportunities in the foreign exchange market. 

The survey showed 55 percent of the participants expect the peso to be the best performing Asian currency against the US dollar through year end, signaling confidence in the future of the economy.

Thirty-three percent were optimistic about the Japanese yen, but very few expect a strong showing against the US dollar from the currencies of India, Indonesia, or China.

Eighty-six percent of those polled expect the peso to hold steady between P46 and P48 against the greenback, which is above the average rate of P43.935:$1 over the last five years. 

The majority or 85 percent also expect the central bank to maintain the benchmark interest rate at 3 percent, "indicating that sentiment on the balance between inflation and economic growth is on a comfortable path at the moment," Bloomberg said.

Over half of those surveyed see hedging against market volatility as the biggest FX challenge for companies in the Philippine, while a quarter says navigating regulatory requirements is the greatest challenge. 

Bloomberg noted all the respondents indicated they are very or somewhat comfortable that current foreign reserve levels can provide sufficient cushion against external shocks to the peso.

"Nearly half of market participants surveyed said that volatile global financial markets represent the major factor impacting growth in the Philippines."

The slow growth in China and weak demand in the Philippines and globally account for most of the rest of the anticipated risk. — VDS, GMA News