THE peso was seen on Wednesday to gain sharply against the US dollar and likely average P37.5 per dollar by yearend, according to the British-owned lender HSBC.
This, as its managing director and cohead of Asian economic research, Frederic Neumann, also said the Bangko Sentral ng Pilipinas was about the only central bank in the region that has kept its policy rates steady when everyone else in the region has since acted preemptively against rising price pressures.
He, likewise, said while the next rate-setting meeting of the BSP’s monetary board had been set for March 24 this year, the more likely hike in policy rates would come in May.
According to Neumann, the country’s macroeconomic underpinnings support the strong forecast growth of the peso over the near term.
Local output or the gross domestic product should grow by at least 5 percent this year and accelerate further to 5.8 percent next year on the back of accelerating private consumption, government spending and investments.
“Growth is expected to be strong, the exchange rate should reflect it,” he observed.
And because growth is rapidly expanding, inflation, or the rate of change in prices, was also seen to accelerate from 8.8 percent last year to 4.4 percent this year and to around 4.8 percent next year.
The BSP earlier released a forecast that sees inflation averaging also by 4.4 percent this year but moderating to around 3.5 percent next year.
Neumann said both the US Fed and the European Central Bank (ECB) were unlikely to raise interest rates in their respective spheres because unemployment numbers in one and tentative growth in the other were forecast to remain weak.
He brushed aside arguments that cheap money in both the US and euro area should apply as well to countries in the region, pointing out that Asian trends for core inflation had been rising.
“Countries in the region are generating their own inflation pressures and central banks here need to respond independent of the ECB or the US Fed,” Neumann said.
He added there was an urgency to respond to rising trend inflation because central banks like the BSP, for example, are most effective when they respond preemptively rather than reactively.
“I think the earlier the better since the Philippines is now the standout in the region for not having raised its interest rate yet,” Neumann said.
In fairness to the monetary authorities, BSP Governor Amando M. Tetangco Jr. acknowledged the presence of “more risks in the near future” although in the end the seven-man MB kept their policy-rate structure intact for the time being.
Neumann said the remittances of overseas Filipinos, the forecast surplus in the balance of payments, and strong growth all point to a strong peso; and that these and other factors are not reflected in the actual exchange rate.
From P37.5 per dollar this year, the exchange-rate should strengthen further to P35.5 the following year, according to Neumann.
BSP head of Treasury Wick Veloso, however, thinks that while the peso was bound to strengthen, the more realistic rate was around P41 per dollar by year end.
Veloso’s view is closer to an earlier forecast release by Goldman Sachs whose economists believe the peso upside was limited to around P41 per dollar.
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