The Philippine central bank鈥檚听accommodative stance听amid policy tightening by the US Federal Reserve could weigh the peso听down听in the听coming听months, Fitch Solutions Country Risk & Industry Research said.听
It said it expects the peso to average听at听P51.80听a听er dollar this year, weaker than its P49.29 average in 2021.听
鈥淭he Bangko Sentral ng Pilipinas鈥櫶(BSP) near-term dovish stance, loose fiscal policy and a worsening current account balance outlook will all weigh on the unit, alongside US Fed monetary tightening,鈥 Fitch听Solutions听said in a note on Friday.听
The peso closed at P50.999 on Dec. 31,听6.2% weaker听than a year earlier.听
Fitch Solutions听cited central bank听Governor Benjamin E. Diokno鈥檚 statement that the BSP was听unlikely to raise interest rates in the first half听because听they want to see at least four to six quarters of solid economic growth and an improving labor market.听
鈥淭he statement can be seen as the BSP鈥檚 willingness to support growth at the cost of some peso weakness, which we expect to materialize as the US Fed begins its hiking cycle,鈥 it said.听
鈥淲e expect this gradual depreciatory trend to persist over the near term as investors favor emerging currencies with higher carry and more hawkish central banks, against the backdrop of US monetary tightening,鈥 it added.听
Fed officials said they expect听as many as听three rate听increases听this year, noting they are ready to respond to elevated inflation.听
Meanwhile, Fitch Solutions said they听don鈥檛 expect the peso to be affected much by this year鈥檚 elections, taking into account the peso鈥檚 performance in the weeks leading to the presidential election in 2016.听
But the market would regard听a win by Ferdinand听鈥淏ongbong鈥澨齊. Marcos, Jr., the only son and namesake of the late Philippine dictator, as negative, they said, since this could signal听a possible return to authoritarianism.听
鈥淲e do not anticipate a significant divergence from the strongman leadership style of the incumbent president, Rodrigo Duterte, and as such, expect only modest volatility around the elections,鈥 Fitch Solutions added.听鈥斕Luz Wendy T. Noble听
