THE local currency is expected to weaken against the US dollar in the near term, as the country’s pandemic situation affects investor confidence.
In a research note on Tuesday, Fitch Solutions—the research arm of the Fitch Group—said they have revised their forecast on the Philippine peso’s performance for the year to average P49.20 to a dollar from its previous expectation of P48.10 to a dollar.
“We at Fitch Solutions believe the Philippine peso will trade in a wide range over the near term, given continued uncertainty around the country’s handling of Covid-19, the central bank’s loose monetary policy stance and weakening fundamentals,” Fitch Solutions said.
The think tank further said the peso is expected to remain “vulnerable to Covid-19 outbreaks, given low vaccination rates and difficulties containing outbreaks.”
“We note the prolonged disruptions from the pandemic have weakened the Philippines’s fundamentals with, for instance, public debt rising, and the current
account surplus shrinking. This is likely to also weigh on the peso’s attractiveness to investors,” Fitch Solutions said.
“The risks in the near term are that the Philippines faces another surge in cases which sets the economy back further and requires policy to remain accommodative for longer, weakening the investors’ appetite for the peso further and seeing the unit test support at P52 to a dollar,” it added.
Data from the Bankers Association of the Philippines (BAP) showed that the local unit closed trade at P50.14 to a dollar on Tuesday, stronger than the previous trading day’s P50.24. The total traded volume is at $998.7 million for the day.
Fitch Solutions also revised their long-term outlook for the peso from the earlier P49 to a dollar average to P51 to a dollar on average for 2022.
The think tank said the risks to their outlook are to the downside.
“A ‘taper tantrum’ scenario or growth shock in which emerging market currencies come under pressure could see the peso weaken sharply,” Fitch Solutions said.
“In addition, were the Philippines to lag other major emerging markets in terms of vaccinating its population and managing outbreaks, then we could see the economy’s fundamentals weaken further, resulting in reduced investor appetite for Philippine assets,” it added.
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