Year-to-date the PHP has dropped -0.58% aganist the USD. Still, it flagged multiple downside risks for its peso outlook: rate hikes from the Fed that could be higher than expected, further escalation of the Russia-Ukraine War which could push up prices even more, and a global economic slowdown possibly worse than projected.The Philippine peso has rose two a two-month high in September 2022 Photo: An147yus / ShutterstockĪfter rising to an all-time high against the US dollar (USD) in September 2022, the Philippine peso ( PHP) has fallen slightly in 2023. However, we acknowledge that the peso is not too overvalued and as such downside pressure will be limited,” said Fitch Solutions. “Indeed, despite the steep depreciation since the start of the year, the peso still appears slightly overvalued in real effective exchange rate terms, as compared to its 10-year moving average. Meanwhile, for 2023, the company expects higher structural inflation compared to the United States and higher-than-average valuations to weigh on the peso with the expected decline in the competitiveness of exports. The peso’s close breached the ₱56-per-dollar level on July 7, over a week after it crossed the ₱55 mark. RELATED: Bangko Sentral: 'Strong dollar phenomenon' behind weaker peso, not local developments
Foreign media have reported that he is open to raising rates by half a percentage point to support the peso and avoid the exchange rate from “overshooting too much.”
It also cited BSP Governor Felipe Medalla’s recent signaling of a more aggressive stance. Still, Fitch Solutions expects the peso to depreciate in a “relatively gradual” manner in the months ahead, noting the BSP has enough foreign reserves to intervene in the forex market if needed. The Federal Reserve hiked rates by three-quarters of a percentage point in June - a move not made since 1994 as it cracks down on skyrocketing inflation - while the Bangko Sentral ng Pilipinas has only enacted a cumulative increase of half a percentage point since May. The United States, for instance, has been more aggressive in raising interest rates compared to the Philippines. “As major central banks around the world turn increasingly hawkish and continue hiking rates aggressively, capital will likely be diverted away from emerging economies such as the Philippines, and into fixed income assets in developed countries which are considered less risky,” it explained. The Fitch unit also flagged the effect of monetary policy tightening across the globe on the peso’s performance. RELATED: Trade deficit swells to 3-month high of $5B in March The trade balance, which is the biggest component of the current account, also ran on a deficit from January to March.Ī trade deficit, which happens when a country imports more than it exports, contributes to a weaker peso-dollar exchange rate as more dollars are purchased to fund the increase in imports. The country’s current account deficit has widened to 5% of the economy in the first quarter from 3.5% in the last three months of 2021. “We expect the widening current account deficit and deteriorating terms of trade to continue exerting downside pressure on the peso in the near-term,” said Fitch Solutions in its latest commentary. The American think tank said it now sees the peso averaging ₱54.30 this year, weaker than its previous ₱52.30 estimate.įor next year, it projects a ₱56.40 average versus the greenback.
Metro Manila (CNN Philippines, July 7) - Fitch Solutions expects the peso to continue performing weakly against the dollar even up to 2023, revising its forecast average for the currency this year and the next.
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