The peso may depreciate further to 54 per US dollar by the end of the year due to the widening trade deficit, DBS Bank of Singapore said in a report Tuesday.
The local currency on Monday posted a fresh 12-year low against the greenback at 52.95, P0.25 lower than 52.7 at the close last Friday. It was its weakest level in almost 12 years since the 52.98 on July 3, 2006.
DBS said the currency had depreciated 5.8 percent year-to-date, more than the full-year depreciation of 5.4 percent and 4.7 percent in 2016 and 2015 respectively, to become the weakest currency in Asia, excluding Japan.
“The latest weakness was triggered by the trade deficit which widened to a cumulative $12.2 billion in the first four months, 1.6 times wider than the same period a year ago. The trade shortfall is pressured from both sides, that is, a 6.2-percent YoY decline in exports versus a 10.5-percent increase in imports in January-April,” it said.
The country’s trade-in-goods deficit in April widened to $3.62 billion from the $1.55-billion gap a year ago as imports surged 22.2 percent while exports fell 8.5 percent.
Total exports dropped 8.5 percent to $5.11 billion in April from $5.59 billion a year ago, the fourth consecutive month of decline, dragged by the decrease in non-electronic manufactured products (wood manufactures, machinery and transport equipment, chemicals, processed food and beverages, and furniture and fixtures) and agro-based products.
Total imports, meanwhile, jumped 22.2 percent to $8.73 billion in April 2018 from $7.14 billion in April 2017, an acceleration from a tepid increase of 0.3 percent in March 2018.
DBS said foreign reserves had, for the first time since 2014, fallen below $80 billion since April. Meanwhile, the inflation hit a new five-year high of 4.6 percent year-on-year in May and averaged 4.1 percent in the first five months, above the official 2-4 percent target range.
“This prompted the central bank to raise its policy rate on May 10 by 25 basis points to 3.25 percent. We see one more hike later this year. With opinion divided on whether the economy is overheating, the peso is likely to keep its depreciation path towards 54 by end-2018,” the bank said.