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Friday, March 1, 2024

Economist expects peso to rebound in 4th quarter

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A bank economist said over the weekend the peso will likely recover against the US dollar in the fourth quarter after it depreciated more than 10-percent since the start of the year.

Rizal Commercial Banking Corp. chief economist Michael Ricafort said in a report the peso weakened by a total of P5.281 or 10.4 percent against the greenback since the start of the year from 50.999 at the end of 2021.

The peso closed at 56.28 on Friday following the recent correction of global currencies against the US dollar which received a boost from the US Federal Reserve’s aggressive interest rate hikes.

The local currency hovered near the record low of 56.45 despite the unexpected 75-basis-point local policy rate hike on July 14 to 3.25 percent that could support or at least help stabilize the peso exchange rate.

“However, in the fourth quarter, the peso exchange rate could be supported by the expected seasonal increase in OFW remittances, export sales proceeds that are converted to pesos especially during the holiday season,” Ricafort said.

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“These are based on consistent patterns seen in recent years/decades,” Ricafort said.

He said the US dollar’s gain against the peso since January increased the preference by foreign investors to convert US dollars into pesos and purchase Philippine investments, especially those at relatively bargain levels such as stocks, government securities and other investments.

Ricafort said more local policy rate hikes were possible, if needed, as a function of any further Fed rate hikes to bring down elevated US inflation.

“Any further local policy rate hikes would also be partly a function of how the peso exchange rate behaves and the impact on inflation as well as actual inflation data, going forward,” Ricafort said.

“The markets still wait-and-see on any additional actions/measures by the local authorities; would it be similar to 2004-2005 when they effectively limited the upside of the US dollar/peso at 56.40 levels; would they further raise the local policy rate to provide greater support/stability for the peso exchange rate and to better manage/anchor both inflation and inflation expectations; yet see how local authorities would further use their toolkit related to the exchange rate vis-a-vis the inflation-targeting framework since 2001 and the price stability mandate,” he said.

The peso on July 7 pierced the 56-per-dollar boundary and has been on a retreat mode since the aggressive 75-basis-point hike in the policy rate by the US Federal Reserve in June. Fed officials hinted of more and aggressive hikes in the coming months.

Economists earlier said the Fed’s move would lead to a stronger US dollar against global currencies.

The inter-agency Development Budget Coordination Committee projected the peso-dollar exchange rate to settle between P51 and P53 per dollar this year. For 2023 to 2028, the assumption was at P51 to P55 on heightened global uncertainty such as the aggressive monetary policy tightening by the US Fed, market aversion amid Russia-Ukraine conflict and increased global oil prices.

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