The peso may weaken to 55 against the US dollar this year as foreign capital flows out of emerging markets into developed markets, the treasurer of China Bank said.
“We will probably revisit new (dollar) highs…emerging markets are flopping,” China Bank treasurer Benedict Lee Chan told reporters yesterday.
“You’ve seen the United States raise rates. You’ve seen ECB (European Central Bank) and the rest of the G10 countries also raising rates. With that, capital flows are going out of the Philippines,” he added.
As such, he said the peso could test 54-55 levels against the dollar this year.
The peso is currently at 53.5 to a dollar, according to Bankers Association of the Philippines spot report.
Chan is also expecting the inflation-targeting Bangko Sentral ng Pilipinas (BSP) to raise interest rates two more times for the rest of the year, the first 25 basis points of which would likely come in August.
But the August monetary setting will also depend on how inflation will fare this July. This means that the rate hike may be more than 25 basis points if the inflation rate continued to overshoot expectations.
“At the start of the year, I was projecting two hikes, now we are there, and the inflation picture seems to be still not going well,” Chan said.
The country’s year-on-year inflation rate surged to a five-year high of 5.2 percent in June from 4.9 percent in May.
A weaker peso contributes to higher inflation by making imports—such as of oil and capital goods—more expensive.
“Hopefully everything subsides, so we can come back down to around 53,” Chan said.
