The Filipino peso could sink to as low as P62 per dollar This year as a Dovish Central bank and Road increased liquidity in the financial system on the currency, Bank from America (Bofa) worldwide research said.
“We believe that the policy capacity towards easier financial conditions remains negative for the PESO,” said it in a report.
Bofa predicts that the local unity will hit the Greenback in the first quarter and fall to P62 in the second and third quarter.
It said that the peso could return to P61-per-Dollar in the fourth quarter.
“Despite the decision to keep the rates, the Bangko Sentral NG Pilipinas (BSP) maintained a Dovish guidelines with the possibility of further tariff reductions this year and those guidelines recently followed with large liquidity injections by the reserve requirement Ratio,” said Bofa.
The relaxation trajectory of the central bank will be “Bearish” for the peso, it added.
While the BSP kept the interest rates unexpectedly stable during his interest rate bearting last month, BSP governor Eli M. Remolona, Jr. said that the central bank is still in its relaxation cycle.
He signaled the possibility of a maximum of 50 basic points (BPS) of cutbacks this year, although not necessarily at every meeting or every quarter.
Bofa noted that the recent liquidity injection resulting from the RRR reduction could also influence the performance of the PESO.
The BSP announced last month that it will beat the RRR of Big Banks with 200 bps to 5% of the current 7%, with effect from 28 March.
The RRR of digital banks will also be reduced by 150 bps to 2.5% and lenders with 100 bps to 0%.
Analysts have estimated that between P300 billion to almost P400 billion in liquidity can be submitted in the financial system after the RRR reduction.
The broader deficit of the broader account of the country (CA) can also influence the currency, Bofa said.
“The other factor that stimulates the American dollar question is the increasing Ca deficiency that has been seen in the past year, leaving a financing gap behind.”
Previous data from the BSP showed that the shortage in the current account was $ 12.9 billion in the first nine months, equal to 3.9% of gross domestic product (GDP).
“However, a more defensive attitude of BSP supported the PESO because the financing gap was received with a marking of reserves. Historically, BSP’s concerns about weaker FX (Vevies) are more connected to the inflation passage. But low inflation at the moment and lower imported prices would mean that persistent flattening is unjustified, “it added.
The Peso closed on P57.90 per dollar on Monday, which strengthens the finish of P57.995 on Friday by 9.5 centavos.
Last year, the Peso reached the all time low P59 per dollar level three times in the middle of the dollar stick. It still has to violate this record.
Bofa said, however, that the Peso weakness “will be partially compensated by the defensive slippery streams of BSP and lower oil prices.”
The BSP has said that it intervenes in modest amounts to limit speculation and keep markets orderly.
“We recommend reforming the peso, because the covering costs remain low and we expect the Peso to act weaker because of the American dollar strength and the BSP,” it added. – Luisa Maria Jacinta C. Jocson