Economists: Further peso appreciation likely

After the peso breached P58 per greenback, economists expected a manageable peso-US dollar exchange rate as market analyses have shown renewed chances of a looser United States Federal Reserve policy.

In a message to the DAILY TRIBUNE, Michael Ricafort, chief economist of Rizal Commercial Banking Corp., said Friday’s foreign exchange data started reflecting a stronger peso.

“The US dollar corrected slightly lower versus major global currencies after softer US economic data lately, such as gross domestic product (GDP) and pending home sales, among others that could still support possible Federal Reserve and local policy rate cuts,” he said in a Viber message.

According to the Bankers Association of the Philippines, the peso closed on Friday at P58.51 from P58.635 on Thursday.

The peso reached a high of P58.73 on Thursday, reflecting the local currency’s depreciating trend in 1.5 years.

The peso last reached its weakest level at P58.55 in November 2022.

However, Ricafort said the US Federal Reserve might ease its policy rate this year which could sway investors to peso-denominated financial instruments, leading to a stronger peso and cheaper imported goods and services.

His statement came after the US Bureau of Economic Analysis downgraded its first-quarter gross domestic product growth estimate to 1.3 percent from 1.6 percent due to slowing household spending among Americans.

Analysts surveyed by Yahoo Finance said the foreign central bank might impose one to two rate cuts this year to expand the economy.

“We also continue to see the Bangko Sentral ng Pilipinas lagging the Federal Reserve’s easing cycle, where we expect the first policy rate cut in the latter’s September meeting which should then support the peso,” Ricafort stated.

“Going forward, the peso’s performance would partly be a function of intervention or defense as consistently seen over the past 1.5 years,” he added.

Metrobank Research and Market Strategy Department, for their part, maintained that the peso will likely stabilize as the Philippines strives to balance the demand for dollars through less importation of goods.

“We expect the peso to be further supported by a narrowing current account balance of $6.1 billion this year versus $11.2 billion in 2023, driven in turn by improving trade deficit levels and recovering travel exports, accompanied by an expected uptick in BPO revenues and OFW remittances in the fourth quarter,” Metrobank said in an email.

Metrobank expects the peso to settle at P56.10 by the end of the year.

BSP Senior Assistant Governor Illuminada Sicat assured consumers that the BSP continues to assess the local and global economy to prevent negative growth in domestic inflation and investments through monetary policy adjustments.

“We look at whether there is a presence of market stress because if left unattended, this will affect inflation expectations which we are avoiding,” she said.

“Given that we are all affected by the monetary position of the Federal Reserve, we think this is only temporary and eventually, once things clear up, the fundamentals will determine the exchange rate level,” Sicat added.