Bullish prospects for PH peso

Investors are bullish on the Philippine peso, expecting the local currency to sustain its upward trend, supported by expectations the Bangko Sentral ng Pilipinas (BSP) will announce another round of policy rate hike at their next policy meeting.

The peso closed 53.13 against the US dollar on Friday from 53.09 the previous day. Year-to-date, the peso lost six percent and was described as the worst-performing currency in Asia this year after touching the 53:1 level against the greenbuck last month on worries over expanding current account deficit, runaway inflation and higher interest rates in the US.

However, the local currency is on a steady climb since Friday last week before a soft decline on Thursday closing at 53.09, a centavo down from Wednesday’s 53.08. Since mid-year the peso is outperforming its Asian peers on anticipation the BSP would announce a 50 basis points interest rate hike next week.

Economist and industry players said the resurgence of the Philippine peso against other Asian currencies is due to market anticipation the BSP would take a more aggressive action to control inflation and to announce another round of policy rate hike.

This week, BSP Governor Nestor Espenilla vowed to take “strong” action at its policy meeting on 9 August and said the central bank is ready to implement “decisive and measured policy actions” to tame inflation back to the target of 2 percent to 4 percent by 2019.

The bullish sentiments towards the peso reflect the latest outlook by Moody’s Investor Service saying the Philippines economy would maintain its domestically-driven growth as the country is not “as exposed” to the trade war between the United States and China compared to its neighbors.

Moody’s vice president and senior credit officer Christian de Guzman, in an interview, noted that Manila could also take advantage of the dispute by positioning its apparel and furniture exports to the US as “perfect substitutes” to Chinese products.

He stressed that the Philippines’ growth might not at all be impacted.

“The way we see the Philippine growth story is much of that momentum is domestically-driven, and may not be at all impacted by what’s going on in the trade wars,” De Guzman said.

US President Donald Trump earlier this week proposed a higher 25-percent tariff on $200 billion worth of Chinese products, ratcheting up pressure on Beijing.

The tit-for-tat measures between the US and China could disrupt supply chains in Asia, De Guzman said.

“If there are any Chinese goods that are impacted by these tariffs, it could reverberate around the region through supply chain linkages,” he said.

Moody’s earlier said that the Philippine economy is expected to stay the course this year, as certain risks are balanced by opportunities of growth for 2018, adding that they are optimistic of Philippine prospects for 2018 as the country’s credit profile remains supported by strong growth and progress on reform.