The US Federal Reserve’s plan to increase interest rates again this year is threatening the stability of the peso against the dollar, a bank analyst said over the weekend.
Nicholas Antonio Mapa, a research officer at the Bank of the Philippine Islands’ financial markets and treasury division, said the expected three Fed rate hikes in 2016 would weaken the local currency against the greenback.
“We’ll see dollar regain strength with projected three Fed rate hikes at least in 2016,” Mapa said in an e-mail to The Standard.
The peso completed its third straight annual loss in 2015, as global funds fled local stocks and tightening monetary policy in the US boosted the dollar. The peso depreciated 5.2 percent in 2015 to close at 47.06 a dollar on Dec. 29 from 44.72 a dollar a year ago.
Bangko Sentral predicted that portfolio investments or ‘hot money’ would post a bigger net outflow of $1.3 billion this year than the expected $200-million net outflow in 2015, due to external headwinds and as the US economy continued to exhibit signs of recovery, supporting the strength of the dollar.
Foreign investors sold $1.2 billion more shares than they bought in 2015, contributing to the Philippine Stock Exchange index’s first loss since 2008. The PSEi fell 3.9 percent last year to settle at 6952.08 on Dec. 29.
The peso breached the 47-a-dollar level on Nov. 9, closing at 47.16 from 46.935 a day earlier. It further weakened to 47.26 on Nov. 10 as the imminent Fed lift-off strengthened the dollar against other currencies.
“The peso reflects the strong dollar,” said Jonathan Ravelas, chief market strategist at BDO Unibank in Manila. “We’ve been seeing higher levels for the dollar but the peso remains stronger compared to other currencies in the region due to strong fundamentals.”
Ravelas said he expected the peso to trade in a range of 46.50 to 48.50 per dollar in 2016. The presidential elections in May, the extent of US monetary tightening and the response of China’s economy to policy makers’ stimulus will be the major factors impacting the peso next year, he said.
Bangko Sentral, however, said the country’s overall balance of payments position was expected to remain strong, with a surplus of $2.2 billion in 2016.
The projected surplus in the overall BoP balance is seen to result in an increase in the 2016 gross international reserves to $82.7 billion from $80.7 billion in 2015.
“The 2016 current account will continue to be in surplus at $5.7 billion, lower than the US$8.9 billion in 2015 due mainly to the expected large increase in the imports of goods, notwithstanding improvements in the services and secondary income accounts,” Bangko Sentral said.
It said the projected net outflow in the financial account in 2015 could likely reverse to a small net inflow in 2016 as foreign direct investments continued to flow in. With Bloomberg