Philippine peso set for more gains in 2021 on falling imports

MANILA: The Philippine peso is seen notching a third year of gains in 2021 as the sluggish economic recovery curbs imports and with remittances expected to rebound.

The peso, which closed at 48.085 per dollar on Friday, will rise to 47.50 by the end of next year, according to a Bloomberg survey. The currency has risen 5.4% this year, the biggest gainer in South-East Asia.

The Philippine economy is forecast to start growing only in the second quarter of 2021, putting it among the slowest to recover from the pandemic that has ravaged the global economy. Falling imports have crimped demand for dollars, with the peso surging to a four-year high in December.

“As long as domestic demand is far from a full recovery, we expect the peso to get even stronger, ” said Eugenia Victorino, head of Asia strategy at Skandinaviska Enskilda Banken AB in Singapore.

Among her company’s 2021 top trade recommendations is to sell the dollar against the peso with a target of 46.

Imports fell 19.5% in October from a year ago, its 18th month of declines. The narrower trade balance is boosting the current account, with the central bank raising its forecast for a surplus next year to 1.5% of gross domestic product.

The global growth rebound will also boost demand for Filipino workers abroad next year, with the central bank predicting remittances will advance 4% after an expected 2% drop in 2020. Remittances are the nation’s largest source of foreign exchange after exports.

The central bank remains committed to a flexible foreign-exchange rate policy as the improving economy could impact the currency’s supply and demand, governor Benjamin Diokno said Friday

Philippine peso bonds, Asia’s top performer this year, are expected to remain supported by the central bank’s accommodative policy. Bangko Sentral ng Pilipinas, which held its key interest rate on Thursday at a record-low 2%, has said it stands ready to use a full range of tools to boost growth.

”With BSP pledging an accommodative environment into next year, bonds will remain supported, ” said Dan Roces, chief economist at Security Bank Corp in Manila.

“A low interest-rate environment means moderate returns for bonds, with yields to slowly retrace to pre-pandemic levels on the back of more borrowing to fund pandemic expenses.”

The nation’s bonds have handed investors almost 19% this year. The yield on the 10-year debt has fallen to about 3% from more than 5% in March, even as the government increased debt sales and projected a wider budget deficit next year. — Bloomberg

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