DBS: Peso to stay weak till 2018’s first half

A SUSTAINED DEFICIT in the country’s current account will put further pressure on the peso, analysts at a global bank said, noting that the currency is likely to trade weaker than the P50-per-dollar level at least until the second quarter of next year.

In its mid-quarter report on Asian currencies, analysts at DBS Bank tagged the Philippine peso as a regional outlier alongside the Hong Kong dollar, saying that other currencies have seen a “stable” run against the greenback so far.

“The PHP has been Asia’s weak link this year,” the Singapore-based bank said in an Aug. 1 report.

“With record trade deficits cancelling out foreign worker remittances, the current account surplus is set to fall into deficit. 2017 will be the first year since 2002 that the Philippines returned to being a twin-deficit country.”

DBS went on to describe the peso as Asia’s “worst-performing” currency this year, particularly citing the deterioration of the Philippines’ current account to a deficit as the biggest weight on the exchange rate.

The current account measures money flows from goods and services trade. A deficit means more foreign currency from these activities went out than came in.

The country posted a $318-million current account deficit in the first quarter, equivalent to 0.4% of GDP. This compares to a $600-million deficit expected by the central bank for the full year. If realized, the current account will turn around from 2016’s narrow $601-million surplus.

This comes amid sustained double-digit growth in monthly importations, which analysts attributed to the greater need for raw materials and equipment to support the government’s aggressive infrastructure development.

DBS also cited comments from Moody’s Investors Service, which flagged overheating risks for the economy even as it affirmed its “Baa2” rating for the Philippines in June.

The global bank sees the peso ending the year at P50.70 versus the greenback, weakening to P51 and to P51.30 in 2018’s first and second quarters, respectively.

“[M]arkets will continue to monitor the trade deficits which have not only widened to more than eight percent of GDP, but also look set to overtake overseas foreign worker remittances,” the report read, referring to the double-digit climb in goods imports which has led to the shortfall.

On the other hand, remittances from overseas Filipino workers totalled $11.346 billion in the five months to May, 4.5% more than the year-ago amount.

Economic managers, in their June review of macroeconomic assumptions, expected the peso to trade P48-50 to a dollar this year. The peso averaged P50.03 versus the greenback from January-July, according to central bank data. In 2016, the local unit depreciated by 4.19% to a P47.49 average from P45.50 in 2015. — Melissa Luz T. Lopez