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Peso to weaken this year as trade recovers

THE PESO could weaken against the greenback in 2021 to push it back to the P50-per-dollar level as global trade gradually recovers amid easing restriction measures.

The local unit closed at P48.023 per dollar on Dec. 29 — the last trading day of 2020 — appreciating by P2.612 from its P50.635 finish on Dec. 27, 2019.

The peso’s stronger finish towards the end of the year was on the back of a narrower trade deficit, said Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort.

“Relatively slower recovery in imports that resulted in a narrower trade deficit led to the relatively stronger peso in recent months,” Mr. Ricafort said in a text message.

Data from the Philippine Statistics Authority showed the country’s trade deficit narrowed to $1.777 billion in October from $1.783 billion in September and the $3.573-billion gap logged a year ago amid a decline in inbound shipments.

Aside from falling imports, support from the Bangko Sentral ng Pilipinas (BSP) kept the local unit around the P48-per-dollar level, said UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion.

“The lack of dollar demand has contributed to the peso strength and will likely continue because of the lingering threat of the coronavirus,” Mr. Asuncion said in a text message.

For this week, dollar demand could pick up as firms restock and amid some signs of recovery in economic activity. Mr. Asuncion said this could translate to downward pressure on the peso and gave a forecast range of P48.02 to P48.06 versus the dollar for the week.

Meanwhile, Mr. Ricafort said the market will be on the lookout for key data releases on inflation and manufacturing. For this week, he expects the local unit to move within P47.95 to P48.09 versus the dollar.

Inflation rose by 3.3% in November, quicker than the 2.5% in October due to the impact of recent calamities. A BusinessWorld poll of 13 economists yielded a median estimate of 3.2% for December, with analysts saying the impact of the typhoons on commodity prices have already subsided.

The Philippine Statistics Authority will release December inflation data on Jan. 5.

Throughout the year, market sentiment on the peso will depend on the pace of the pickup in imports as well as developments related to the pandemic and economic recovery prospects.

For 2021, Mr. Ricafort gave a forecast range of P48-P49 versus the dollar while Mr. Asuncion expects the peso to trade within the P48 to P50 level. — L.W.T. Noble

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