Peso weakens as BOP narrows

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    The peso may end at 49.50 to the dollar this year amid the expected narrowing of the country’s balance of payments (BOP), according to SB Equities Inc.

    This after the Bangko Sentral ng Pilipinas (BSP) reported the fourth quarter BOP hit $9.1 billion, up 302 percent from the prior year and 230 percent from the previous quarter.

    “The jump was largely due to an increase in financial account net inflows at $6.5 billion given bigger portfolio investments and current account surplus position of $4.2 billion partly stemming from narrower trade-in-goods deficit,” SB Equities noted.

    It said the BOP surplus of $16 billion, compared to $7.8 billion in 2019, was mainly a result of a turnaround in the current account balance of $13 billion compared to a $3 billion deficit the prior year.

    The surplus led for the Philippines’ gross international reserves (GIR) to hit $110.1 billion as of end-2020, compared to $87.8 billion in end-2019. In end-February, GIR was at $109.1 billion.

    “External liquidity buffers are ample as depicted by the import cover at 11.7 months and short-term external debt cover based on original (residual) maturity at 9.5 (5.4) times as of end-February,” SB Equities said.

    However, it noted that the BSP is projecting a narrowing of surplus this year and next year at $6.2 billion and $3.8 billion, respectively. Current account surplus, meanwhile, is expected to decrease to $9.1 billion this year and further declining to $5.2 billion in 2022.

    GIR is expected to reach $114.0 billion in 2021 and $117.0 billion in 2022.

    “Overall, the BSP’s short-term outlook on BOP is based on gradual economic recovery buoyed by vaccine rollouts, government spending program, and a more robust global economic growth momentum,” SB Equities said.

    It added that a narrowing of BOP surplus is associated with a decline in peso value vis-a-vis the dollar, “as per the central bank’s projection is associated with an increase in a peso depreciation.”

    “Our house’s USDPHP forecast of 49.50 by end-2021 hinges on an import rebound as demand conditions and government’s infrastructure spending recovers in the second half,” SB Equities said.

    “A potential downside risk to this exchange rate outlook is if the economic recovery stalls amid reimposition of lockdowns to help temper resurgence of COVID-19 cases as well as persistently slow vaccine rollouts,” it added.