MANILA, Philippines — Fitch Solutions Country Risk & Industry Research expects the Philippine Peso (PHP) to reach an average of 47.50 to $1 in 2021 from this year’s projected average of 49.60 to $1. This is an improvement from the research unit’s previous projection of 49.75 to $1 for this year and 50.10 to $1 for next year.
Fitch Solution believes that the tailwinds driving the Peso will continue next year, and the rising interest in the currency will bolster the unit further. The Peso has strengthened by 5.3% in 2020, better than the 3.6% average for the Asian dollar index.
The research unit sees the weak domestic import demand, the country’s strong external fundamentals, surprises to the upside from remittance inflows, and the policies set by the Bangko Sentral ng Pilipinas to curb market volatility as the key drivers for the strengthening of the currency. They believe that these factors will continue helping the Peso in the next term and would be aided by the depreciation of the US Dollar.
The Peso’s resistance level is now at a support level of 48 to $1 and will range from 46 to 48 until the latter half of 2021. However, from a technical support perspective, the Peso is approaching the end of its rise as it appears to be overbought from a stochastic oscillator perspective, bouncing off the zero bound, according to Fitch Solutions.
They said that there is a possibility of higher foreign inflows that will drive up the Peso in the coming quarters because of loose monetary policy stances from major developed market central banks. This would entice investors into investing in higher-yielding assets, especially those with lower risks.
They also say that the currency has been relatively stable in the fourth quarter of the year, partially due to the interventions of the BSP in the foreign exchange markets. The low risks attributed to the Philippine government bonds have also contributed to this stability.
After the 200-basis-point interest rate slash in 2020, the BSP is expected to maintain its key policy rate at 2%, an all-time low, until June 2021 before hiking by 25 base points in the last quarter of 2021.
Fitch Solutions pointed out that the BSP increased its foreign exchange purchases in the latter half of the year, making for a 3.5% increase in the value of the Peso despite an 11.8 percent increase in the country’s gross international reserves. However, it does not expect an aggressive appreciation for the local currency in the near term.
According to the research unit, the local currency could face challenges because of the resurgence of Covid-19 cases and possible re-implementations of lockdown measures in the country.
Fitch Solutions said that narrowing the current account surplus to 1% of the gross domestic product next year before turning to a deficit of 0.4% of the GDP in 2022 from a surplus of 3.5% this year would greatly affect the Peso.
Furthermore, the research unit expects the Peso to fall and depreciate to 50 to $1 levels once 2022 arrives.
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