Philippines Peso rallies against dollar: Remit now?
It has become Asia’s top-performing currency in 2023 so far
Highlights
- Peso seen gain further as the central bank seeks to keep interest rate differential with US.
- BSP widely expected to raise rate further on Thursday.
- But higher trade deficit keeps pressure on Asian currency.
Manila: The Philippine peso could spike further, after having already risen the most since January among Asian currencies. And is expected to continue to firm up on expectations of additional rate increases by the country's central bank.
A higher peso would mean lower exchange rate for overseas Filipino workers (OFWs) who send money home in US dollars, or a currency pegged to the greenback.
Now, the peso is widely expected to continue to be strong because the Bangko Sentral ng Pilipinas (BSP) is keen on maintaining a healthy interest-rate differential (IRD) with the US to stabilise the currency and inflation.
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The peso stood at 14.8423 against the UAE dirham as of 10.36 UTC on Monday. But the peso’s further rise could be hampered by a growing trade imbalance.
Check the latest forex rates here.
Traders in the foreign exchange market use IRDs when pricing forward exchange rates.
The assumption that the BSP, one of the few Asian central banks to maintain a tightening stance, will announce another rate hike this week is helping boost the peso.
Higher trade deficit
However, the Philippine trade deficit has jumped to its widest in five months as a result of a drop in exports — thus potentially putting the peso under pressure from dollar outflows on higher import bills.
The country registered a trade deficit of $5.74 billion in January, 27.2 per cent higher than the $4.51-billion deficit in January 2022, according to a recent Philippine News Agency (PNA) report.
The Philippine central bank projects a current-account deficit of $17.1 billion this year — or 4 per cent of GDP — showing a significant trade shortfall.
Since August 2008, the key rate has finally reached its greatest level.
Yet before the peso shows a definite upward trend, there will be fluctuations due to the increasing unpredictability of the global economy.
Currency traders are keeping close tabs of the BSP's move. Out of 18 analysts surveyed by Bloomberg, 17 expect the central bank to increase its benchmark interest rate by 25 basis points (a quarter of a percentage) on Thursday.
In 2022, the BSP tripled interest rates to 6 per cent. This comes on the heels of US Federal Reserve moves to increase interest rates by 450 basis points since March 2022.
Meanwhile, the US banking sector is still reeling from bankruns that led to the two major US banks to fail, further clouding the outlook for Fed rate policy.