The peso depreciated to a new 13-year low of 54.23 against the US dollar Monday, as the trade war between the US and China escalated and on strong corporate demand for the greenback.
It was the local currency’s weakest finish in nearly 13 years, or since it settled at 54.30 per dollar on Nov. 24, 2005. Around $670.6 million changed hands Monday.
BPI Investment Management Inc. president Martin Enrile said there was a strong demand for the US dollar, as companies were importing capital goods and equipment for their expansion.
“We now see the peso closing the year at 54.50 against the dollar by yearend,” Enrile said.
The peso was also down 8.6 percent against the dollar since the start of the year.
The country’s balance of trade-in-goods’ deficit in July widened 171 percent to $3.55 billion from $1.31-billion deficit a year ago, as imports jumped 31.6 percent, while exports barely grew 0.3 percent.
This brought the trade deficit in the first seven months to $22.49 billion, significantly higher than the $13.055-billion shortfall a year earlier.
Prakash Sakpal, ING Bank Asia economist, said in an earlier report that remittances were insufficient to cover the trade deficit on a sustainable basis and the current account in deficit.
“This isn’t a long-term positive for the Philippine peso,” Sakpal said.
Money sent home by Filipinos working overseas increased 5.2 percent in July to $2.401 billion from $2.283 billion in the same month last year.
This brought cash remittances in the first seven months to $16.58 billion, up 3 percent from $16.095 billion a year ago.
The Bangko Sentral ng Pilipinas reported that current account, one of the main components of the balance of payments, posted a significantly higher deficit of $3.1 billion in the first half compared to the $133-million deficit in the same period last year, mainly because of the widening trade deficit.
ING Bank said the peso’s recovery was still possible, depending on the direction of capital flows and the Bangko Sentral’s resolve to contain the currency’s weakness.
“We expect BSP to also directly intervene in the spot market to manage PHP’s weakening trend. A key to this is the country’s FX reserves. We expect government to issue an additional $1.5 billion to $2 billion of global bonds before the end of the year. The proceeds would raise FX reserves and BSP’s ability to participate actively in the spot market,” ING said.
“We also expect capital inflows from equity offerings which could amount to $1.5 billion to $2 billion. Combine this with BSP’s tightening bias for the rest of the year and structural inflows for the Christmas season. These together with further improvement on EM risk appetite could bring some peso strengthening before the end of the year,” the bank said.
The peso closed 2017 at 49.93 a dollar.