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Peso seen strengthening to P46/dollar by end-2021

THE PESO could strengthen further this year to P46 against the dollar by the end of 2021, due in part to the strong performance of the current account, according to the private banking arm of Hongkong and Shanghai Banking Corp. Ltd. (HSBC).

Dollar weakness and solid remittances will also be factors, according to Cheuk Wan Fan, the head of investment strategy and advisory for Asia at HSBC Private Banking, at a news conference Wednesday.

“The currency will remain firm, the Philippine peso is one of the best performing EM (emerging market) currencies and this is driven by strong current account position, with the rebound in export performance, and the weakening of the US dollar last year,” she said.

“From now to the end of the year, we expect the peso to stay largely stable, with the peso currently trading at P48 (to the dollar). We are expecting P46 at the end of this year and the big move has already happened in the second half of last year,” she added.

The peso closed at P48.03 on Wednesday, strengthening from its P48.078 close on Tuesday.

The current account posted a $4.1-billion surplus in the third quarter of 2020, turning around from the $456-million deficit a year earlier.

The Bangko Sentral ng Pilipinas expects the current account to be in surplus by $8.4 billion, equivalent to 2.3% of gross domestic product (GDP), for 2020. This is expected to narrow to $6.1 billion or 1.5% of GDP this year.

Ms. Fan said the strengthening of the peso will also be further supported by the robust remittances from overseas Filipinos. Cash remittances grew by 0.3% to $2.379 billion in November, marking its third consecutive month of growth. Remittances, however, were still down 0.8% at $27.013 billion in the first 11 months of 2020.

Ms. Fan said she expects the Philippine economy to have contracted by 9.7% last year due to the protracted lockdown and the failure to speedily contain the spread of the coronavirus disease 2019 (COVID-19).

She said HSBC Private Banking sees the economy growing 6.5% this year, at the lower end of the government’s 6.5-7.5% growth target.

She said the recovery will hinge on the further reopening of the economy, assuming that COVID-19 cases remain manageable levels and an effective rollout of vaccines.

“The Philippine economy will likely lag behind its Asian peers, particularly the North Asian peers like China which has been doing relatively well in containing the virus. In our view, the recovery trajectory will largely hinge on the containment strategy in the fight against the COVID-19 pandemic,” Ms. Fan said. — Beatrice M. Laforga

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