Peso weakens further as trade deficit widens

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FALTERING PESO A customer makes a transaction with a bureau de change in Manila. The peso is expected to weaken to $53.50:1 by June. —FILE PHOTO

The Philippine peso is expected to weaken to 53.50 to the dollar by June amid a widening trade deficit, although the local currency is expected to strengthen for the rest of the year.

According to Netherlands-based bank ING, the Philippines’ trade deficit is expected to have reached $4.9 billion in March, widening by two-fifths from $3.5 billion in February and four-fifths from to $2.7 billion in March 2021.

England-based Pantheon Macroeconomics expects $4.7 billion while HSBC believes it will reach $4.4 billion.

“Philippine imports are expected to maintain the trend of double-digit gains, driven by an expected increase in fuel imports given high global crude prices,” ING Bank said in a commentary.

With the trade deficit remaining “significant” in March, this would put downward pressure on the Philippine peso in the near term, the Dutch bank said.

Pantheon Macroeconomics estimates that the peso will hit its lowest value this year in June, falling from 51.80 to the dollar at the end of March.

However, the peso is then expected to strengthen to $52.50:1 in September and then to $52.1 in December.

“The [trade] the deficit is probably back to [the January level of] $4.7 billion in March, after increasing [narrowing] to $3.5 billion in February, when Lunar New Year effects significantly affected imports,” Pantheon Macroeconomics said.

Export growth

The research firm noted that Philippine export growth likely collapsed to -0.3% year-on-year from 15% in March 2021, mainly due to a negative base effect.

Import growth also faced the handicap of a high base number, but the jump in inbound commodity shipments likely accelerated growth to 20.5% from 20.1%.

“As the Philippines is a net importer of food and fuel, it remains susceptible to upside inflation risks,” HSBC said, adding that inflation may have reached 4.6% year-on-year in April.

“While fuel subsidies already exist in the Philippines, the government can also reduce taxes on food imports and use targeted subsidies to rein in food prices,” HSBC said. “These measures should help offset some of the price pressures over the coming months.

Inflation picking up ING Bank expects an even higher inflation figure at 4.8%, prompting it to reiterate that the latest figures should convince the Bangko Sentral ng Pilipinas to get hawkish and raise its key rate before the end of the second quarter.

BSP Governor Benjamin Diokno said earlier that the central bank may consider raising interest rates in June, especially if the Philippine economy grows by 6-7% in the first quarter.

Official data on foreign trade and inflation will be announced later this week, and on gross domestic product next week. INQ

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