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Friday, March 29, 2024

Peso set to decline to 51.30 by end ‘17

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THE peso will depreciate to 51.30 per dollar by yearend as imports will continue to increase and eventually weigh down on the local currency.

Mark Bautista, chief of the Metrobank Research, told reporters in a briefing that he was expecting a significant depreciation of the peso this year compared to last year when it closed at 49.72 on the last trading day of 2016.

“The peso will depreciate to 51.30 by yearend, as the demand for capital goods tends to increase imports and create additional weakness in the peso,” Bautista said.

But he was quick to add that the peso’s decline would not necessarily mean that the economy was weak, when in fact “it is very strong.”

“A weak currency tends to make our exports more competitive (especially the business process outsourcing sector) which is positive for us… A peso weakness is a sign of a strong economy,” Bautista said.

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The peso weakened to a 10-year low of 50.40 on March 3, 2017, driven by domestic factors such as the possible repercussions from other countries to Congress’ passage of death penalty law and the market expectation that larger fiscal deficit spending would widen the trade deficit and bring the current account to a deficit.

But the succeeding weeks saw the local currency gaining strength and staying at the 49-a-dollar level in the whole month of April.

BSP Deputy Governor Diwa Guinigundo

Bangko Sentral ng Pilipinas Deputy Governor Diwa Guinigundo credited the peso’s recovery to the government’s tax amnesty plan and the expected passage into law of the comprehensive tax reform program this year.

“Our traders receive report that the market seems to be encouraged by the good prospects of the government’s tax reform package and tax amnesty plan,” Guinigundo said in a previous statement.

“As you know, we have expressed support of such a plan because from a monetary perspective, over the medium term, that is going to be a positive for price stability,” Guinigundo said.

He said infrastructure spending was a winning proposition for everyone. He also said the country’s sustained positive macroeconomic outlook on growth and price stability helped convince the market that it needed to consolidate and reconsider its unfavorable view about the peso. 

Despite some political noise, Guinigundo said the economy was well on its track of demonstrating its good performance despite the risky operating environment.

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