MANILA, Philippines - The local currency the peso was seen gaining more strength over the long haul, averaging as high as P40.80 for every dollar, the Manila unit of the global financial-services firm Citigroup said on Tuesday.
Citigroup Chief Economist for Asia Pacific Johanna Chua made the forecast at a briefing for financial reporters, even as she also made a case for the Philippines to grow this year at a pace averaging 5 percent to 5.3 percent in terms of the gross domestic product.
This compares with official forecast growth averaging 5 percent to 6 percent this year.
Citigroup’s estimate was also higher than the International Monetary Fund’s forecast growth for the Philippines this year of 4.7 percent and that of Standard & Poor’s 4.9 percent.
Both were upgrades from earlier forecast numbers.
Chua said the local currency, whose closing rate on Monday was higher by six centavos, should appreciate further to around P41.5 per dollar in the next three months.
The peso’s continued strength, she added, highlights the flow of yield-seeking foreign capital into emerging markets like the Philippines, whose growth and inflation dynamics could encourage monetary-policy planners to impose one more rate adjustment possibly toward the end of the year.
Citigroup in Manila expects one more policy rate cut of another 25 basis points.
“If inflation were to moderate in the coming months, we wouldn’t rule out a greater incentive for one more rate cut,” Chua said.
Such cut mirrors the need to shield recipients of overseas remittances from a sharply stronger currency and that inflation, while benign at the moment as regulators claim, is under compulsion to rise as best indicated by rising core inflation.
“The Philippines, as well as countries like India, Thailand and Vietnam, which already have uncomfortably high inflation at their growth-inflation cycle are constrained from raising inflation further as a result of QE3.
“Similarly, central banks predisposed to have sensitivity to asset/property price concerns can be particularly more guarded on policy easing,” she said.
On why the Bangko Sentral ng Pilipinas (BSP) may be more inclined to lower its policy rates, Chua explained, “With a more positive risk tone and prolonged low rates, capital inflows could be particularly strong in countries with strong fundamentals and higher yields.”
The BSP “had used opportunities of a strong risk-on environment to cut rates amid still robust growth. In the wake of QE3, we’ve seen statements by BSP warning [against] the use of ‘macroprudential tools to manage capital flows,’ but if inflation were to moderate in the coming months, we wouldn’t rule out a greater incentive for one more rate cut,” she said.