Fitch Solutions downgrades peso outlook, sees P56.40:$1 average in 2023

Fitch Solutions Country Risk and Industry Research on Thursday downgraded its outlook on the Philippine peso, citing a mix of the country’s current account deficit and the monetary policy tightening seen across the globe.

In a commentary released to reporters, Fitch Solutions said it now expects the peso to average P54.30:$1 this year, weaker than its previous outlook of P52.30:$1.

The local currency is expected to weaken even further in the coming year, with the 2023 outlook revised to P56.40:$1 from P53.00:$1 it earlier projected.

The Philippine peso closed Wednesday at P55.67:$1, weaker than Tuesday’s finish of P55.23:$1.

“The widening of the Philippines’s current account deficit coupled with tightening global monetary conditions will likely exert further downward pressure on the peso,” the commentary read.

“Over the coming quarters, we expect the current account balance to remain in a deficit due to elevated commodity prices and strong import demand, especially after the government implemented a slew of tariff cuts in an attempt to tame rising prices,” it said.

Fitch Solutions expects the current account deficit to continue widening and impact the peso in the near-term, after it was recorded at 5.0% of the GDP in the first quarter from 3.5% in the last quarter of 2021.

The Bangko Sentral ng Pilipinas (BSP) last month downgraded its current account projection for the year to a $19.1-billion deficit, equivalent to 4.6% of the gross domestic product, due to a widening trade deficit.

The central bank has also raised interest rates twice so far this year — 25 basis points in May, and another 25 basis points in June.

“Nevertheless, the pace of peso depreciation will likely be relatively gradual in the coming months as the Bangko Sentral ng Pilipinas has ample foreign reserve to intervene in the FX market if necessary to smooth downside volatility,” Fitch Solutions said.

BSP Governor Felipe Medalla earlier signaled a more hawkish stance, noting that the BSP is prepared to tighten rates more aggressively to prevent the exchange rate from “overshooting too much.” —KBK, GMA News