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ING economist expects peso to sustain rise vs. dollar this year

A bank economist said over the weekend the Bangko Sentral ng Pilipinas will likely allow the peso to sustain its appreciation against the US dollar to offset the expected uptick in inflation rate this year.

ING Bank Manila senior economist Nicholas Mapa said in a report 2021 would see a global weak US dollar scenario.

“In 2021, the peso is on an appreciation path, helped by the current Fed stance and also as import demand fades sharply due to the pandemic, in stark contrast to 2018 wherein imports ballooned to historical highs,” Mapa said.

Mapa said that as the BSP would likely continue to keep its eye fixed on the growth objective given the dire needs of the economy and ruling out early rate hikes in 2021, the only card it could play to combat inflation in 2021 would be to let the currency appreciate.

“With BSP not likely open to hiking rates this time around as it would derail what little growth momentum left in the economy, perhaps if ever BSP would be forced into action, allowing the currency to appreciate would be their only play available,” he said.

The peso closed at 48.085 against the greenback on Friday, nearly unchanged from 48.02 at the start of the year.

The BSP earlier downplayed the risk of a rate hike in the near term given the precarious growth situation of the country. Monetary authorities also said that keeping a rate cut in November 2020 would have done little to avert inflation caused by African swine fever or higher fruit prices induced by typhoons. 

Inflation accelerated to 3.5 percent in December from 3.3 percent in November 2020 with both private analysts and monetary authorities predicting a pickup in headline inflation this year.

The uptick was deemed “transitory” by the BSP as the rise in prices was traced largely to supply side disruptions and higher input costs such as global oil prices. 

BSP Governor Benjamin Diokno said in a briefing earlier the peso remained resilient and stable amid the pandemic.

“The local currency has also performed better compared to other Southeast Asian currencies and appreciated vis-à-vis the US dollar along with the Chinese yuan, Taiwanese dollar, South Korean won, and the Japanese yen, year-to-date,” Diokno said.

He also cited analysts’ expectation that the peso would remain strong in the near term and maintain its resiliency as one of Asia’s top-performing currencies.

“The peso’s strength can be attributed to sound macroeconomic fundamentals characterized by a benign inflation environment, a strong and resilient banking system, prudent fiscal position and a sufficient level of international reserve buffer,” said Diokno.

Deputy Governor Francisco Dakila said the BSP was expecting enough elbow room to maintain the current accommodate policy stance this year as inflation rate was seen to remain manageable in the coming months.

Topics: ING , Bangko Sentral ng Pilipinas , BSP , peso , US dollar
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