“Let’s calm down,” said the governor of the Philippines’ central bank on Sunday as he sought to settle investor nerves following a fall in the Philippine peso to an eleven-year low against the dollar.
The peso fell on Friday to 51.14 against USD – a valuation not seen since August 2006 – and has fallen again on Monday to 51.29.
The peso remains Asia’s worst performing currency in 2017 and, together with the Hong Kong dollar, is one of only two of the twelve most actively traded Asian currencies to post a loss against USD this year, which is saying a great deal given the difficult time the American currency is having.
Against the euro, the peso fell to 60.38 last week and to 60.50 on Monday – a fresh three-year low.
Against a regional rival, the Thai baht, the peso is trading at multi-decade lows.
In an effort to reassure investors, Bangko Sentral ng Pilipinas (BSnP) governor Nestor Espenilla told reporters on the weekend that he didn’t “expect [the peso] to do a freefall because economic fundamentals now, unlike before, are solid and very strong, which are reflected in the Philippines’ investment grade credit rating.”
“[The peso] is capable of correcting itself as the market calms down and digests the relevant information,” Espenilla added.
Last week, in a televised interview, Espenilla had already said that the BSnP are “comfortable that the exchange rate will remain within manageable levels” and that the bank would “let the exchange rate be determined by market conditions.”
Peso weakness has been driven by a deterioration in the state of the Philippines’ current account, which is now “the peso’s Achilles heel” according to Standard Chartered strategist Divya Devesh. Unfortunately, the situation with the current account is unlikely to improve anytime soon. The BSnP are forecasting a deficit – the first in fifteen years – of some USD 600 million in 2017 but this number is widely expected to balloon in 2018 and might reach closer to USD 2 billion within the next eighteen months.
The central bank governor seems unconcerned.
“It’s natural to run moderate current account deficits. In fact, it’s sub-optimal for it to be persistently running current account surpluses,” said Espenilla.
Regardless, in a special report into the Philippine economy, the research team at ANZ expressed their belief on Monday that the peso will remain Asia’s worst performing currency until the end of the year, citing as their reason a “build-up of imbalances in the economy, which are intensifying.”
Precise peso forecasts come from Macquarie and Natixis, with analysts at both banks currently predicting a year-end USD/PHP exchange rate of 52.0, or in other words, even more peso weakness ahead.
Standard Chartered’s Divya Devesh said in July that he believes the peso might fall to 52.5 by the middle of 2018.
Watchers of peso exchange rates can look forward to Thursday’s second quarter Philippine GDP data. Expect a sub-1% number to spark yet another wave of peso selling. The median estimate is for quarterly growth of 1.1%.
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