Philippine peso may slide to an all-time low as trade deficit widens

THE Philippine peso may extend its record-setting slump against the greenback as billions of dollars of trade deficits weigh on the currency, increasing pressure on the central bank to intervene to slow its descent.

The peso may slide to an all-time low of about 62 against the dollar as early as this year, about 5.4 per cent weaker than Friday’s (Sep 30) close, according to ING Groep, Bank of the Philippine Islands and eMBM Services. The currency has slumped 13 per cent this year and is one of the worst performers in Asia.

Policymakers across Asia’s emerging markets are dipping into their foreign-exchange stockpiles and ramping up verbal warnings against speculators as rate hikes by the Federal Reserve drive the dollar higher. Bangko Sentral ng Pilipinas (BSP) has signalled it may need to take stronger measures to stem peso losses, including draining liquidity and boosting borrowing costs.

“The peso is feeling the heat,” said Nicholas Mapa, senior economist at ING in Manila. “Surging imports are boosting demand for dollars and leading to elevated trade deficits. The central bank is likely in the market to smooth out volatility, but you can’t really do much when the Fed comes in hot and heavy.”

The South-east Asian nation’s monthly trade deficit exceeded US$5 billion for four consecutive months through July, as imports climbed. Rising imports prompted officials to increase the forecast for the nation’s current-account gap to a record US$20.6 billion this year.

Inflation data

“The peso can hit 60 by early November if US data remain strong and BSP refrains from an off-cycle hike,” said Emilio Neri, lead economist at Bank of the Philippine Islands in Manila, adding that the peso could then go on to test the 62-per-dollar level.

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Inflation data due this week will help determine the need for more aggressive interest-rate hikes after the central bank delivered 2.25 percentage points of increases this year. BSP is scheduled to next decide on policy in November.

Foreign selling of Philippine equities as the benchmark sank into bear-market territory is also adding to pressure on the currency. Outflows have reached US$1.2 billion this year. BLOOMBERG