ING Bank Manila expects the peso to strengthen to 48.80 against the US dollar by yearend, up from the Dutch bank’s previous estimate of 49.50 a dollar.
ING Bank Manila senior economist Joey Cuyegkeng said strong macroeconomic fundamentals would continue to shield the local currency from volatility mostly emanating from the external environment.
“We further expect a strong Philippine peso environment in the second half. Volatility will remain as market reacts to developments offshore and onshore… We expect the peso at 48.80 by yearend from our previous forecast last week of 49.50,” Cuyegkeng said in a report Wednesday.
He said a weak US dollar environment together with steady Chinese yuan would offset a steady monetary policy view and keep the peso probing the strongest level year-to-date at 49.36 a dollar.
The peso closed at 49.505 a dollar Wednesday.
“We have turned bullish for the peso and expect the peso to strengthen to P48.80 by yearend after some amount of volatility. Other reasons are the belated return to pre-reflation trade in November 2016, favorable reception of the tax reform program, stronger-than-expected structural inflows and portfolio flows and a more modest trade deficit coupled with a recovery in OFW remittances,” Cuyegkeng said.
Cuyegkeng said while there were headwinds, these could be temporary as investors would eventually look beyond these issues. He said the tax reform program could see a hit on household consumption in 2018.
He said economic growth would likely accelerate in the second half as consumers front-load spending ahead of the tax impact starting in January 2018. “We continue to expect that political impact on the financial markets is likely to remain low,” Cuyegkeng said.
The peso closed at 49.72 a dollar on the last trading day of 2016. It posted its weakest level in 10 years at 50.40 to a greenback 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.
The Cabinet-level Development Budget Coordination Committee kept the peso-dollar exchange rate this year at P48 to P50.