Peso expected to rebound after 4.7% drop in a month

The peso is expected to recover against the US dollar in the fourth quarter, after breaching the 50-per-dollar level in July on higher demand for the greenback amid the seasonal increase in imports, a bank economist said over the weekend.

Michael Ricafort, chief economist of Rizal Commercial Banking Corp., said in a report the peso’s recent weakness might be partly attributed to stronger US dollar against most ASEAN currencies.

“But the peso fared worse than most of them since June 16, 2021, as may have been triggered by the Fed’s more hawkish signals since then, as well as the spike in new COVID-19 cases to new record highs recently in Indonesia and in other ASEAN countries,” Ricafort said.

He said the peso’s 4.7-percent depreciation against the dollar since June 16, 2021 when the Fed’s hawkish signals started was slightly better compared to the 5.9-percent depreciation of the Thai baht; but weaker against the 2.7-percent depreciation of the Malaysian ringgit, 2.6-percent depreciation of the Singapore dollar and the 1.8-percent decline of the Indonesian rupiah in the same time period.

Ricafort, however, said the US dollar/peso exchange rate was still stronger at 50.34 a dollar, compared to 50.635 in end-2019 or before the onset of the pandemic.

“The US dollar/peso exchange rate is expected to seasonally go down in the fourth quarter with the expected seasonal increase in OFW remittances and conversion to pesos especially during the Christmas season,” Ricafort said.

He said this could be offset by some pickup or recovery in the economy and imports with the expected increase in COVID-19 vaccine arrivals especially in the third and fourth quarter that could help reduce new local cases and, in turn, help justify the further re-opening of the economy.

“Exports also tend to pick up seasonally in the latter part of the third quarter up to fourth quarter, following the seasonal increase in importation in the third quarter,” Ricafort said.

The peso breached the 50 level on July 9, 2021 when it closed at 50.08. It was its weakest level in more than a year since settling at 50 dollar posted at the close on June 25, 2020.

Latest data from the Bankers Association of the Philippines website showed that the peso closed last Friday’s trading at 50.34 a dollar, weaker than 50.135 on Friday.

The Department of Finance said last week the peso remained relatively stable compared with other Asian currencies despite the onslaught of the COVID-19 pandemic.

Finance Undersecretary and chief economist Gil Beltran said in an economic bulletin that like other currencies in the region, the peso weakened against the dollar at the end of the first semester.

Beltran said year-to-date, “the peso depreciated by 1.05 percent against the dollar, one of the four strongest among 11 Asian currencies.”

“The peso was the least volatile currency among Asian countries with available data in 2019. The volatility of many currencies increased in 2020 due to the pandemic but the peso remained among the more stable currencies, ranking next to the Thai baht,” Beltran said.

He said the volatility―as estimated by the coefficient of variation―of the peso-dollar exchange rate rose from 0.74 in 2019 to 0.92 in 2020, tracking the trend in Asian currencies.

He said that in June, the peso-dollar coefficient of variation rose to 0.94 from the 0.82 registered in May. He said this increase in volatility might be traced to the Fed’s indication to start ‘talking’ about a taper or reducing its purchase of government bonds and mortgage-backed securities.

“Strong fundamentals support the relative stability of the peso. As of end-May, for instance, the country’s reserves of $107.25 billion could cover more than a year’s worth of imports. Furthermore, the country’s exposure to external debt, measured in percent to GDP, is the lowest among major Southeast Asian economies,” Beltran said.

“Prudent macroeconomic management, containing the spread of the virus and ramping up the vaccination program, and safely reopening the economy will be important in maintaining investor confidence in the country during this time of pandemic,” he said.

The peso ended 2020 at 48.023 per dollar, stronger than 50.635 at the last trading day of 2019.

Topics: Peso , US dollar , Michael Ricafort , Rizal Commercial Banking Corp. , COVID-19 , Department of Finance , Gil Beltran
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