Peso down vs dollar at the end of the year
Credit to Author: MAYVELIN U. CARABALLO, TMT| Date: Fri, 28 Dec 2018 16:14:45 +0000
THE peso ended 2018 weaker against the dollar, finishing at P52.58:$1 — down eight-and-a-half centavos from Thursday — on the final trading day of the year.
Friday’s close marked a 5.3-percent drop from the P49.93:$1 posted on December 29, 2017 and was near the lower end of the government’s P52.50-53:$1 exchange rate assumption for the year.
It was an improvement from September’s near-13 year lows in the P54:$1 level but analysts said the currency was likely to remain under pressure next year.
London-based research consultancy Capital Economics said a further widening of the current account deficit was one of the key risks for the currency.
Weak global demand is expected to continue weighing on exports while the government’s infrastructure program is likely to keep inbound shipments strong, it explained
“This in turn is likely to put renewed downward pressure on the peso. We expect the peso to fall 5.0 percent to 55 to the dollar by the end of 2019,” Capital Economics analysts said.
ING Bank Manila senior economist Nicholas Antonio Mapa, meanwhile, said the peso would face moderate to mild depreciation pressure given expectations of a protracted current account deficit and a likely 200-basis point cut in the reserve requirement ratio.
“The structural factors that have led to US dollar outflow, coupled with an infusion of peso liquidity, should all drive Philippine peso weakness,” he added, forecasting the peso to again drop to P54:$1 in 2019.
Fitch Solutions, for its part, offered a “slightly more bearish” outlook of P56.33:$1.
It said the government’s infrastructure program and the absence of a corresponding increase in direct and portfolio inflows or higher domestic savings would widen the country’s trade and current account shortfalls.
The trade deficit expanded by 68.5 percent as of end-October to $33.918 billion, from $20.128 billion a year earlier, based on latest available data.
The current account — a major component of the balance of payments — consists of transactions in goods, services, primary income and secondary income, and measures the net transfer of real resources between the domestic economy and the rest of the world.
It hit a deficit of $2.907 billion in the third quarter, a reversal from the $1.1-billion surplus recorded a year earlier. The year-to-date shortfall widened to $6.471 billion, also a reversal from the $968-million surplus seen in the comparable 2017 period.
Last year, the Philippines incurred a current account deficit equivalent to 0.8 percent of gross domestic product.
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