In the first half of this year, the Philippine peso was underpinned by the delayed infrastructure spending because of the lack of budget approval, thereby containing the trade deficit. In the year-to-date, the Philippine peso has accordingly appreciated 2.8 percent. Nevertheless, with the budget now passed, the infrastructure spending might resume, pushing up imports again. Moreover, the Philippine exports might be negatively impacted due to the ongoing downturn in the global technology cycle and decelerating global growth, noted ANZ in a research report. The latter might have ramifications on remittances from Filipinos working abroad, a significant driver of consumer spending in the Philippine economy.
Meanwhile, further easing of the monetary policy is expected to be a drag on the Philippine peso as well. Weak growth and inflation are likely to urge the central bank to cut the overnight policy rate further by a cumulative 50 basis points, on top of further reserve requirement ratio cuts over the remainder of 2019.
“While monetary easing could be a negative for the peso in its own right, it can help boost domestic demand and import growth, weakening the currency thereby. We therefore expect USD/PHP to gradually weaken to 53.0 by end 2019, falling further to 53.5 by the end of 2020”, added ANZ.
