P60:$1 on hold? Economists see 'brake' on peso depreciation

The Philippine peso recently hit a fresh all-time low of P59 to the dollar, but economists say breaching the P60 mark is not expected any time soon, as they say the country’s current economic fundamentals may provide a brake on further depreciation.

According to Robert Dan Roces, economist for SM Investments Corp., the peso—which closed Wednesday, November 5, at P58.83:$1—pushing past P60 to a dollar will depend on certain conditions, both local and overseas.

“The peso testing P60 isn’t impossible, but I don’t think that is the base case,” he said in a mobile message.

“Unless we see a sharper Fed-driven dollar rally, an aggressive BSP (Bangko Sentral ng Pilipinas) rate cut, or a sudden widening of the current account deficit, the currency should stay in the high P57.50s to P58.50s by year end,” he added.

The peso hit P59.13:$1 on October 28, its weakest performance to date, which was widely blamed on the ongoing controversies on corruption involving government flood control projects.

Economic officials of the Marcos administration have set a P56 to P58 exchange rate assumption for the year.

The Monetary Board of the BSP in October cut key policy rates by another 25 basis points, and hinted at further easing. It has already reduced rates by 25 basis points each during meetings in August, April, and June. The next policy-setting meeting would be on December 11.

“Domestic fundamentals are still holding up—growth steady despite uncertainties, inflation easing, and remittances steady—while the psychological resistance at P60 remains strong,” Roces said.

READ: How weak peso vs. dollar affects inflation, purchasing power

The government is set to release third-quarter economic growth figures on Friday, November 7. Second-quarter growth came in at 5.5%.

Inflation, meanwhile, clocked in at 1.7% in October, unchanged from the previous month. Core inflation, which excludes select food and energy items, slowed to 2.5% from 2.6% in September.

Latest data available show that cash remittances or money transfers coursed through banks or formal channels were recorded at US$2.977 billion in August.

This figure is down from US$3.179 billion in July, but higher than the US$2.855 billion the same month last year. Inflows historically increase during the holiday season.

READ: Is a strong peso net positive for the Philippines?

For Rizal Commercial Banking Corp. (RCBC) chief economist Michael Ricafort, the peso breaching P60:$1 “could be challenging,” as he said the recent depreciation could have already signaled possible intervention in the local foreign exchange market.

Ricafort said hitting the all-time low of P59.13:$1 last month may have triggered some selling of US dollars in the market, either by profit taking or triggering stop-loss orders as a way to ease pressure on the local currency.

“…That triggered some selling of US dollars in the market, either taking profits or triggering stop loss orders, as an effective way to discourage/ease any undue speculation/pressure on the local currency, since the US dollar has become relatively expensive for some importers and other buyers of US dollars recently,” he said in a separate commentary.

“The US dollar/peso exchange rate would still be a function of the BSP in terms of interventions/smoothening any volatility as one of the important factors/catalysts/considerations, moving forward,” he added.

Ricafort also noted that the country’s gross international reserves (GIR) remain suited to provide a sufficient buffer for the local currency against any undue speculation. Central bank data show that reserves hit an 11-month high of US$108.805 billion in September.

In a note to clients, Japanese lender MUFG Bank Ltd. said it expects the peso to close 2025 at P58.70 to the dollar, citing the possible weakening of the greenback.

“From a fundamental perspective, we continue to highlight other key offsetting domestic positives for the Philippines, apart from global factors such as our expectations for a weaker US dollar and US rate cuts,” it said.

Bank of the Philippine Islands (BPI) lead economist Emilio “Jun” Neri Jr. also earlier noted that the recent depreciation of the peso was driven by a combination of factors such as the increase in oil prices, the central bank’s dovish stance, net foreign selling in local equities, and the substantial current account deficit.

“With inflation at manageable levels, the BSP might see the recent depreciation as tolerable. It might not be a concern from their perspective as long as the inflation forecast for the next two years remains within the target,” he said separately.

“Also, allowing the peso to weaken might be a strategic move for them since a weaker peso could support growth and household spending through its impact on remittances. Recent statements from central bank officials indicate that supporting growth is a greater priority in the near term,” he added.

For its part, the central bank noted that the peso continues to be supported by remittances — a buffer against external shocks, relatively fast economic growth, low inflation, and ongoing structural reforms.

“The Bangko Sentral ng Pilipinas allows the exchange rate to be determined by market forces,” the BSP said earlier.

“We continue to maintain robust reserves. When we do participate in the market, it is largely to dampen inflationary swings in the exchange rate over time rather than prevent day-to-day volatility,” it added.—MCG, GMA Integrated News