The peso may depreciate further to 54.13 against the greenback by the end of 2019, pulled down by a confluence of events both from the domestic and external fronts, Fitch Solutions said Wednesday.
Fitch Solutions cited in a report the domestic political uncertainties, twin deficits and the real interest rate differential vis-à-vis the United States as the factors behind its bearish view on the peso.
“There are three factors informing our bearish peso view. Firstly, real interest rate differential vis-à-vis the US remain in negative territory. Although we forecast the Bangko Sentral Ng Pilipinas to continue its monetary policy tightening in 2019 as we forecast a further cumulated hike of 50bps to its benchmark reverse repo rate to 5.25 percent, the central bank is likely to remain reactive rather than proactive,” it said.
“Secondly, the Philippines’ twin deficit has widened considerably over the past few quarters, and we expect the shortfall to remain elevated with respect to its GDP over the coming year partially due to the government’s expansionary fiscal agenda,” it said.