MANILA - Import requirements from an unprecedented infrastructure overhaul has caused the peso to fall to its lowest level against the dollar in a decade, making it the worst performing currency in Asia so far this year, analysts said.
But ample foreign currency reserves will help the economy weather the currency’s weakness, the International Monetary Fund said, giving President Rodrigo Duterte scope to build P8 trillion in new roads, railways and airports.
The central bank projects a current account deficit of $600 million this year. It incurred a $318-million deficit in the first quarter, a reversal from the surplus posted during the same period last year.
“The current account remains the peso’s Achilles’ heel,” Standard Chartered currency analyst Divya Devesh said.
The Bangko Sentral ng Pilipinas is “actively managing excessive liquidity” in the exchange rate, Governor Nestor Espenilla said last week.
The peso has weakened by roughly 1 percent against the dollar so far this year, the worst performer among 12 Asian currencies tracked by Bloomberg. It fell to P50.695 on Monday, close to its lowest level in 11 years.
Espenilla said the peso’s slide reflected “prevailing market conditions.” Analysts said rising borrowing costs have also put pressure on the peso, as investors seeking higher yields exit emerging markets like the Philippines.
“With the strong U.S. jobs data last Friday, the dollar could rise further as it created a possibility of another rate hike by the end of the year. If the peso depreciates faster, it could eventually affect to a certain extent those portfolio flows," said BDO Chief Market Strategist Jonas Ravelas.
Planned tax cuts under a broad reform package, however, could help attract foreign direct investments that would prop up the peso, said Citiseconline analyst April Lee Tan.