Peso predicted to be Asia’s worst performer next year

MANILA: Investors rejoicing over the Philippine peso’s rally to a six-month high should beware: the currency is predicted to be Asia’s worst performer next year.

The peso will slide to 51 per dollar by end of next year, a loss of 1.5 per cent from current levels, according to the median estimate of a survey, with a most bearish projection of 56. The currency will be undermined as the current-account deficit widens, while the central bank is slow to raise interest rates from a record low, strategists and fund managers say.

“The peso remains vulnerable,” said Jonathan Ravelas, chief market strategist at BDO Unibank Inc in Manila. “The external payments position will likely deteriorate further as more economic activity fuels demand for capital equipment and consumer goods,” he said, forecasting the currency will end next year at 52 per dollar.

The peso has whipsawed this year: sliding to an 11-year low of 51.85 per dollar in October before paring losses to trade at 50.250 on Friday. It is still down 1.1 percent since the start of January.

The Philippines will post a current-account deficit of US$100 million (RM409 million) this year and that will swell to US$700 million next year, Bangko Sentral ng Pilipinas forecast this month. The shortfall is set to increase as President Rodrigo Duterte’s $180 billion infrastructure plan pushes up imports.

“The Philippines doesn’t get a lot of investor inflow, and this is one of the biggest problems and why it tends to weaken off more aggressively than its regional peers when sentiment dies,” said Stephen Innes, head of trading for Asia Pacific at Oanda Corp.

A forecast of 51 per dollar for year-end of next year may be a bit optimistic if anything, he said.

Philippine policymakers have been in no rush to raise rates even after the Federal Reserve increased its benchmark this month for the third time this year. Central bank officials have defended their position by saying annual economic growth in excess of six per cent is unlikely to cause overheating.