The Philippine Peso is Expected to Reach a Value of 54.50 Against the US Dollar by Year End

The Philippine Peso is expected to rise this year, reaching a value of 54.50 per US dollar by the end of the year. This forecast follows a period of weakness in which the peso fell about 10%, ending at 55.755 at the end of 2022, compared to 50.999 at the end of the previous year. The forecast was revealed by HSBC, the British banking giant.

In an online press briefing, James Cheo, the Chief Investment Officer for Southeast Asia at HSBC, explained that the local currency could appreciate further towards the end of the year, with a target rate of 54.50 to the dollar. Cheo attributed this potential appreciation to the peaking of the dollar's strength.

However, Cheo also pointed out some challenges that may act as headwinds for the Philippine Peso. These include a downturn in key areas of the economy, notably in exports. Furthermore, the interest rate gap between the BSP and other nations like as Indonesia and India may affect money flows toward higher interest rates and growth rates.

Cheo thinks that when the dollar decreases, the peso will eventually stabilize. He predicted that the peso will likely stabilize by the end of the year. He did, however, highlight that the currency's near-term success is dependent on global mood. In periods of risk-off sentiment, it would be challenging for the peso to outperform.

Regarding monetary policy, Cheo suggested that the BSP could still raise policy rates following a prudent pause in May. The central bank had kept the policy rate unchanged at the May meeting but may tighten further if inflation surprises on the upside. Inflation in the Philippines has been higher compared to other countries in the region.

Following a series of rate rises since May of the previous year, the BSP opted to keep key policy rates steady in May 2023 due to a downward trend in inflation and the first-quarter GDP growth of 6.4 percent.

Cheo estimated that if inflation continues under control, the BSP would maintain rates unchanged for the rest of 2023. He also said that the Philippines' monetary policy would most certainly continue tight, thereby slowing economic development. As a result, HSBC currently maintains a neutral stance on the Philippine equity market.

Despite adversity, the peso has already shown resiliency. It touched an all-time low of 59 to the dollar in October before rebounding to the 53 to the dollar region in February. This recovery was ascribed to aggressive rate rises by the BSP Monetary Board and the central bank's involvement in the foreign currency market.

According to HSBC, the country's GDP would rise by 4.8 percent this year, after which it will accelerate to 7.6 percent in 2022, up from 5.7 percent in 2021. Cheo noted that the Philippine economy has been propelled by robust private consumption, investment, and consistent state infrastructure expenditure.

Fan Cheuk Wan, HSBC's Chief Investment Officer for Asia, also commented on the US Federal Reserve's monetary policy. Wan predicted another 25-basis-point rate hike next month, following a recent pause. The Fed's policy rates are expected to reach their peak, with one more rate hike in July. In 2024, the Fed is anticipated to cut rates by a total of three 25-basis-point increments, taking into account persistent core inflation. Historically, such a peak in US policy rates has been favorable for risk assets, including equities, investment-grade credit, emerging markets, and Asian assets, according to Wan.

Cheo emphasized that the Philippine economy's recovery will likely be more gradual as global growth slows down. However, he highlighted several factors that will continue to support growth throughout the rest of 2023. These factors include strong employment, the recovery of the tourism sector, expanding production and retail sales, as well as sustained public investment.

Looking ahead, HSBC sees opportunities in the Philippine stock market, particularly in selected consumer companies and banks. The bank maintains a neutral stance on the market for now but notes that consensus growth forecasts for the stock market remain healthy for 2023. Furthermore, HSBC considers the stock market's valuation to be reasonable and undemanding.

In conclusion, HSBC forecasts that the Philippine Peso would increase to 54.50 per US dollar by the end of 2023. While there are certain obstacles, such as the slowing of key economic sectors and the interest rate discrepancy, the peso is projected to stabilize as the dollar falls. The BSP's monetary policy could still see further tightening, depending on inflation trends. The Philippine economy is projected to experience a gradual recovery, supported by various factors. HSBC remains neutral on the Philippine equity market but identifies opportunities in consumer companies and banks. As for the global outlook, the US Federal Reserve is anticipated to continue its tightening cycle with one more rate hike before eventually cutting rates in 2024, which could have positive implications for risk assets.

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