ING forecasts P53.50:$1 forex rate by end of 2018

MANILA, Philippines — Dutch financial giant ING Bank sees the peso rebounding strongly towards the end of the year as sentiment toward emerging markets has improved substantially in recent weeks.

Nicholas Mapa, senior economist at ING Bank, said in the bank’s latest economic and financial analysis the peso is now expected to settle at 53.50 instead of 54 by end of this year, and to 54.45 instead of 54.95 by end 2019, while the Indonesian rupiah is seen closing at 14,500 instead of 15,000 over the next two years.

Mapa said both the peso and the rupiah, together with the Indian rupee, struggled this – year emerging as the worst performing currencies in the region due to concerns about widening trade gaps and resultant current account deficits.

“With oil no longer threatening to jump to $100 per barrel, we can expect some reprieve on the external front for both Indonesia and the Philippines, as their oil import bills may no longer swell in 2019,” he said.

According to the bank economist, both the Philippines and Indonesia would still see their current account deficit in 2019, but the oil slick will lend some reprieve to ease the pressure on the peso and rupiah.

The peso has bounced back by 1.1 percent, and the rupiah by 3.7 percent since the start of the month as concerns about the trade war between the US and China have subsided and the 7.98 percent drop in global oil prices.

Mapa said sentiment towards emerging market currencies has improved dramatically since November.

He said the Bangko Sentral ng Pilipinas (BSP) and the Bank of Indonesia have maintained a hawkish stance after raising interest rates by 175 basis points this year to safeguard financial market stability.

The economist said both central banks are seen further raising benchmark rates by another 50 basis points in 2019 as the US Federal Reserve is expected to push through with its normalization path.

“The combination of this hawkish bias and actual rate hikes suggest the two currencies will face only mild depreciation pressure in the coming months. Market expectations of a blowup in the current account deficits of Indonesia and the Philippines have also subsided, which translates to less pressure on their respective currencies,” he said.

Mapa said the US Fed may decide to maintain its current pace of three rate hikes next year should tight labor push up wage inflation in the coming months.

After emerging as the third worst performing currency after piercing the 54 to $1 to hit a fresh 14-year low a few months back, the peso has recovered strongly back to the 52 to $1.

The local currency gained 13 centavos to close at 52.45 last Thursday from 52.585 last Wednesday as the BSP sees inflation easing to a range of 5.8 to 6.6 percent in November from a near-decade high 6.7 percent in October due to easing oil prices.