Philippine peso likely to continue to appreciate, USD/PHP to reach 50 by end-2020

The evolution of the Philippine peso’s fundamentals signifies that its trajectory requires a rethink, noted ANZ in a research report. The fiscal spending-led widening of the current account deficit needs to be given a closer look. The government’s infrastructure push, apparent since the September fiscal data is expected to be a drag on the import bill. However, around 90 percent of the funding will be externally sourced so the peso is unlikely to feel the heat, said ANZ. A marked rise in tourist arrivals is likely to continue, further underpinning the peso.

The domestic economic outlook is positive, following the recent rebound. Growth prospects have rebounded and underpin the financial market valuation and are expected to support equity inflows over 2020. However, debt inflows might see countering factors.

The Philippines’ real yields might drop in 2020, if the expectations of further BSP easing and a manageable lift in inflation eventuate, stated ANZ. Nevertheless, the Philippine government plans to raise funds through external bond issuances, which might weaken some of this drag. Other factors, such as strong FX reserves, weak oil prices and rebounds in global tech-cycle indicators also augur well.

“We expect a continued appreciation of PHP to reach 50.0 by the end of 2020”, added ANZ.