The Philippines is an economic miracle in progress, at least in terms of its currency – the peso. But whether this miracle can hold is a big question.
According to Bloomberg, once an Asian laggard, the Philippine peso surprised many by beating all but one of its regional counterparts in 2019.
However, its fortune might reverse as policymakers’ proposals to boost economic growth can be at the currency’s expense.
In 2019, the Philippine peso halted a six-year loss to strengthen nearly 4% in 2019.
The exchange of a peso to a dollar reached 50.635 per dollar.
PH Peso May Face Downward Pressure
Still, with President Rodrigo Duterte’s administration ramping up efforts to boost growth and stimulate spending, the peso might be placed under pressure.
Import growth is set to quicken. Moreover, the Bangko Sentral ng Pilipinas is likely to ease more aggressively compared to its US counterpart.
Within a year, the peso is likely to fall.
According to D’Angelo Co., a foreign exchange dealer working at Rizal Commercial Baking Corp, the government’s economic activities might cause peso to pull back to 52.62.
The dealer also said there is still a need for more follow through on investments as well as wait for more growth of the economy for the currency to stabilize.
Duterte’s Build, Build Program Heats Up
Duterte’s infrastructure development program is no doubt heating up. The government has a total of 972.5 billion pesos out of the proposed 2020 budget allotted for this program.
This is a marked 20% increase from the allotted budget in 2019.
If the program is well underway, growth can reach as high as 7.5% in 2020 from just 6% to 6.5% in 2019.
The central bank also anticipates imports to rise by 8% this year and only a 4% increase in exports.
Policymakers also believe that the current-account shortfall will widen further this year, from just $5.6 billion in 2019 to $8.4 billion in 2020.
Some analysts, however, are optimistic about the peso.
They think OFW remittances can support any downside pressure of the peso.
According to Nicholas Mapa, foreign direct investment inflows can increase following the reforms of the tax system.
Mapa is an economist working for ING Groep NV in Manila.
Regardless of this optimism, the peso could feel the brunt of the easing campaign of BSP.
Back in December, Governor Benjamin Diokno explained that policymakers would be considering at least half a percentage point of cuts to the key rate for 2020.
Moreover, the BSP will reduce the reserve requirement ratio further.
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