Rappler.com reports that a London-based research firm, Capital Economics, has a dire prognostication for the Philippine’s currency. 2019 Philippine Peso Plummet Predicted: P58. While a recent post dealt with the possibility of a 60 to 1 exchange rate vs. the US Dollar, this is the first report I’ve seen of an actual legitimate forecast for a historically low Philippine Peso at 58.
Meanwhile, Capital Economics sees the Philippine peso dropping to P55 against the dollar by the end of this year, 2018.
Historically, the Philippine Peso declined to its weakest level of 56.34 in October of 2004. The peso reached its strongest point of 37.84 in May of 1999.
The currency has fallen by 8.0 percent since the start of the year.
Pooh-Poohing the Peso Prediction
Nevertheless, government officials are pooh-poohing the prediction.
Budget Secretary Benjamin E. Diokno disputed the Capital Economics’ projection that the peso will further fall to 58 against the dollar next year, branding it as “out of this world.”
That’s according to an article in the Business Mirror.
I recall Diokno scolding Filipinos earlier this year who were complaining about the rising inflation in the Philippines.
“…We should be less of a crybaby” pronounced the Secretary back in May.
“Crybabies” aside, no need to worry about the plummeting peso, according to a spokesperson from the Central Bank of the Philippines, Deputy Governor Diwa Guinigundo.
“We expect that for the rest of the year, overseas remittances as well as BPOs will be coming in a bigger way. This is the holiday season, so we would expect that the exchange rate will start shaping up,” proclaimed the Deputy Governor.
Why the drop, Pop?
So why does Capital Economics see a further erosion of the Philippine peso?
- A wider trade deficit intensified by the President Duterte’s “Build, Build, Build” P9 billion program for 75 flagship infrastructure projects.
- The government’s infrastructure push has renewed a downward pressure on the peso, “creating a further headache for the central bank.”
- The Philippines’ trade deficit swelled by 171.7% to $3.55 billion in July 2018, a huge leap from the $1.31 billion recorded in the same period last year. The trade deficit is at $22.49 billion year-to-date, 3% wider than the $13.06 billion recorded during the same period last year.
- A trade deficit occurs when a country’s imports exceed exports. A wide trade gap puts pressure and weakens a currency. The double-digit jump in imports was driven mostly by iron and steel shipments (135.5%).
“Looking ahead, the trade deficit is likely to widen further as imports of capital goods continue to flood in to support [President Rodrigo] Duterte’s infrastructure drive,” Capital Economics said.
Rising Stinkin’ Inflation
A weak peso also puts pressure on prices of basic commodities.
On top of this economic trend, Capital Economics also warned that food prices will likely rise even more due to the recent Typhoon Ompong which pounded Northern Luzon over the weekend.
Agriculture damages from the typhoon will result in more than 14 billion pesos worth of losses.
The government’s high energy costs also contribute to high inflation. Oil prices in the global market are expected to go up even further.
2019 Philippine Peso Plummet Predicted: P58
This website has consistently covered the Philippine peso to U.S. Dollar exchange rate over the past nine years. I’ve read predictions of a 37 to 1 rate over the years. That forecast never materialized.
While the exchange rate did drop to 41 to 1 at one point during the last nine years I’ve lived in the Philippines, the vast majority of predictions projecting a stronger Philippine peso never materialized.
However, every forecast of a weaker Philippine peso has come to pass.
Capital Economics may indeed have it right. A Philippine peso at 58 to 1 versus the dollar in 2019 would not surprise me at all.