MANILA - Despite its recent gains, the peso is expected to weaken again this year according to economists from First Metro Investments Corp (FMIC) and the University of Asia and the Pacific (UA&P).
The peso strengthened to P54.87 on Tuesday, just over two months after it touched a record low of P59 to the dollar in October.
But First Metro and UA&P said they expect the dollar to trade between P57 to P59 this year as the country’s huge trade deficit will weaken the peso.
“We have a very huge trade deficit which is going to increase further. This is unprecedented I would say,” said UA&P economist Victor Abola.
"Back in the day, our trade deficit was small and our OF remittances covered that easily. So there is no fundamental basis for the strengthening of the currency,” he added.
The country’s trade deficit narrowed in November to $3.68 billion as exports grew 13.2 percent while imports shrank 1.9 percent. But an expected slowdown in the global economy this year is seen to taper demand for Philippine exports.
FMIC President Jose Patricio Dumlao meanwhile said a weaker peso could help boost the economy through stronger consumer spending.
“Depreciation of the peso is not necessarily bad for consumers. A lot of our citizens are pretty much dependent on OFW remittances, which has been consistently growing, of course at different levels. I think consumer spending will still be strong this year,” Dumlao said.
Abola called for the build-up of the Philippines’ gross international reserves, and said the GIR may hit $102 billion by the end of this year. The latest data from the Bangko Sentral ng Pilipinas showed GIR at $96 billion as of the end of 2022.
Meanwhile, UA&P and FMIC said they expect growth to hit 6 percent this year, and inflation to hit 4.5 percent.
Abola said the biggest risk to growth is inflation.
"Food inflation, if it gets persistent, the farmers do not respond, or there is rent-seeking in the form of your middlemen taking advantage of high prices and planters or farmers are discouraged from planting more because gains do not reach them, I think that is an important risk,” Abola said.
Inflation however will start easing this month, from the 14-year high of 8.1 percent hit in December, Abola said.
"I think it is going to go back by 7 percent by January and we should average 7 percent in the first quarter and it starts going down fast especially as food inflation is tackled,” Abola said.
Because of this, he expects the Bangko Sentral ng Pilipinas to also ease up on rate hikes, with the highest hike likely being 50 basis points in February.
FMIC also said the BSP may pause policy tightening as inflation eases, and that the central bank may even implement monetary stimulus toward the middle of 2023 to help offset the impact of the rate hikes of 2022.
The company said it also expects corporations to slow down and possibly wait until the second half of the year as they observe the direction of interest rates.
FMIC head of investment banking Daniel Camacho said he doesn’t expect corporations to follow in the footsteps of the Philippine government, which raised $3 billion through a US dollar-denominated debt issuance this week.
"I will not recommend it unless you have dollar revenues. So I don’t think so. I think people have learned from the Asian Crisis” Camacho said.
Abola seconded Camacho’s sentiment on borrowing in US dollars.
"I will agree, I will discourage people, businesses to borrow dollars, and concentrate local, even if they do a short-term borrowing to lower their cost."