BMI sees peso closing at P51 to $1 by yearend

BMI Research said it has adopted a neutral view on the Philippine peso over the next three to six months and raised its forecast for the currency to close at 51 to $1 by the end of 2017.

“Over the near-term, we hold a neutral view on the peso as upside and downside pressures appear roughly balanced, informing our forecast for the currency to end the year at 51 to $1,” BMI Research said.

On the downside, BMI said the local currency is still looking technically weak, and the ongoing rally in global oil prices could spell a negative impact on the Philippines in terms of trade.

However, the research firm said it expects the peso to trade sideways in the near-term with the Bangko Sentral ng Pilipinas seen to hike interest rates in the coming months, preventing the further narrowing of real interest differentials between the US and the Philippines.

“We forecast the BSP to hike interest rates by 25 basis points before end-2017 (versus zero US rate hikes for the rest of the year), and once again in 2018 and this will likely be supportive of the peso,” BMI said.

The peso has been one of the worst performing currencies in Asia. Year-to-date, the currency weakened by around 2.4 percent against the dollar, BMI said.

“However, in total terms, the peso has still outperformed the greenback,” BMI said.

Over the long run, BMI said it continues to see the peso outperform the greenback in total return terms, forecasting the currency to average 50.75 to $1 in 2018 and 50.37 to $1 in 2019.

The research firm said it expects the currency to slightly appreciate against the dollar in the coming quarters on the back of higher real interest rate (vis-à-vis the US), anchored inflation expectations and strong economic growth.

“In addition, following the peso’s slide against the dollar over the last few quarters, the peso’s real effective exchange rate is now trading below its five-year moving average. This implies that the currency is trading at slightly below fair value and given the potential for valuations to mean-revert over time, this should act as a tailwind for the currency,” BMI Research said.