{"id":18764,"date":"2024-05-15T03:06:55","date_gmt":"2024-05-15T03:06:55","guid":{"rendered":"https:\/\/energybuzz.ph\/staging\/6915\/pesos-prolonged-weakness-could-stoke-inflation-analysts\/"},"modified":"2024-05-15T03:06:55","modified_gmt":"2024-05-15T03:06:55","slug":"pesos-prolonged-weakness-could-stoke-inflation-analysts","status":"publish","type":"post","link":"https:\/\/energybuzz.ph\/staging\/6915\/pesos-prolonged-weakness-could-stoke-inflation-analysts\/","title":{"rendered":"Peso\u2019s prolonged weakness could stoke inflation \u2014 analysts"},"content":{"rendered":"
\n

By Luisa Maria Jacinta C. Jocson, <\/b>Reporter<\/i><\/span><\/p>\n

THE PROLONGED weakness of the Philippine <\/span>peso could potentially fan inflation, but the <\/span>central bank does not need to intervene unless the currency signi<\/span>f<\/span>icantly drops, analysts said. <\/span><\/p>\n

\u201cPeso weakness becomes worrisome if, for instance, over a period of one year, the peso depreciates by P5, or to P63,\u201d GlobalSource Partners country analyst <\/span>Diwa C. Guinigundo <\/span>said in a Viber message.\u00a0<\/span><\/p>\n

\u201cThis could potentially give rise to an additional 0.4 ppt (percentage point) or if the risk-adjusted inf<\/span>lation forecast of the peso is now at 4%, we might be looking at 4.4%.\u201d<\/p>\n

The peso closed at P57.84 against the dollar on Tuesday, strengthening by two centavos from its P57.86 f<\/span>inish on Monday. Its f<\/span>inish on Monday was its lowest in 18 months or since the P58.19-per-dollar close on Nov. 10, 2022.<\/p>\n

The Bangko Sentral ng Pilipinas (BSP) does not need to intervene immediately unless the local currency drops sharply, Mr. Guinigundo said. <\/span><\/p>\n

\u201cUnless the peso shows sharp, disorderly fluctuations or some speculation persists, I don\u2019t think the BSP will immediately go into active play in the foreign exchange market. Not worth losing its ammunition,\u201d he said.<\/p>\n

Ruben Carlo O. Asuncion, chief economist at Union Bank of the Philippines, Inc. said that the BSP may need to act if the peso further depreciates. <\/span><\/p>\n

\u201cI think that the BSP has established that their line-in-the-sand is the P58 level. I think they will intervene further with the US dollar-peso rate further weakening,\u201d he said in a Viber message. <\/span><\/p>\n

\u201cHowever, I think that the market is being cautious but positioning with the release of US inf<\/span>lation data this week that may give further clues on how the Fed will proceed with its rate cuts,\u201d he added.<\/p>\n

BSP Governor Eli M. Remolona, Jr. earlier said that the central bank has only intervened in the foreign exchange market in \u201csmall amounts\u201d to \u201cmaintain orderly markets.\u201d<\/p>\n

The BSP previously intervened in the foreign exchange market when the peso reached a record low of P59 against the dollar in October 2022.<\/p>\n

Meanwhile, Mr. Guinigundo noted that the recent depreciation so far \u201cmay not necessarily translate into higher inf<\/span>lation\u201d for the rest of the year.<\/p>\n

\u201cShort-term exchange rate pass-through for every P1 depreciation now stands at .08 percentage point additional inf<\/span>lation,\u201d he added.<\/p>\n

Inflation accelerated for a third straight month to 3.8% in April but marked the f<\/span>ifth straight month that inf<\/span>lation fell within the 2-4% target range.<\/p>\n

However, Mr. Guinigundo said the peso would only sink drastically amid conditions such as a \u201csignif<\/span>icant reduction in economic growth, sharp increase in f<\/span>iscal def<\/span>icit and public debt, and huge increase in the balance of payments def<\/span>icit.\u201d<\/p>\n

The Philippines\u2019 gross domestic product (GDP) grew by a weaker-than-expected 5.7% in the first quarter, faster than 5.5% in the previous quarter but slower than 6.4% a year ago.<\/p>\n

The National Government\u2019s (NG) debt as a share of GDP stood at 60.2% as of the first quarter, below the 61.1% a year earlier and the 60.3% target set this year.<\/p>\n

Meanwhile, the def<\/span>icit-to-GDP ratio stood at 4.46% at end-March, easing from 4.82% a year ago and below the 5.6% def<\/span>icit ceiling this year.<\/p>\n

\u201cIf the market perceives the government not to be doing anything to address the huge imports of rice and other commodities, or stop smuggling and corruption, or improve governance in general, then that could cumulatively trigger <\/span>a substantial weakening of the peso,\u201d Mr. Guinigundo said. <\/span><\/p>\n

Mr. Guinigundo said that a global economic slowdown and a spike in oil prices \u201ccould also contribute to upside risks for the peso to lose ground against the US dollar.\u201d<\/p>\n

Latest Development Budget Coordination Committee assumptions show that the peso may range from P55 to P57 for 2024.<\/p>\n

Meanwhile, Fitch Ratings in a report said that investment-grade sovereigns in the Asia and the Pacif<\/span>ic (APAC) face \u201climited risks\u201d from exchange rate pressures.<\/p>\n

\u201cFitch Ratings believes that policies designed to support exchange rates are unlikely to pose significant near-term risks to the credit profiles of APAC investment-grade sovereigns, but any deterioration of off<\/span>icial reserve buf<\/span>fers could pose greater risks to vulnerable \u2018frontier markets\u2019 in the region,\u201d it said.<\/p>\n

The credit rater said that using reserves to mitigate foreign exchange volatilities has not had a \u201csignif<\/span>icant impact\u201d on APAC credit prof<\/span>iles.<\/p>\n

It also said that even though US interest rates remain higher-for-longer, APAC sovereigns would be able to \u201cgenerally allow their exchange rates to depreciate gradually against the dollar rather than deploying reserves aggressively to resist depreciation.\u201d<\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

THE PROLONGED weakness of the Philippine peso could potentially fan inflation, but the central bank does not need to intervene unless the currency significantly drops, analysts said.<\/div>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"nf_dc_page":"","footnotes":""},"categories":[1],"tags":[15744,14644,1108,4285,14126,17895,15717,17584,11],"class_list":["post-18764","post","type-post","status-publish","format-standard","hentry","category-uncategorized","tag-analysts","tag-bworldonline","tag-could","tag-inflation","tag-pesos","tag-prolonged","tag-stoke","tag-weakness","tag-years"],"yoast_head":"\nPeso\u2019s prolonged weakness could stoke inflation \u2014 analysts - Energy Buzz<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/energybuzz.ph\/pesos-prolonged-weakness-could-stoke-inflation-analysts\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Peso\u2019s prolonged weakness could stoke inflation \u2014 analysts - 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