The peso on Monday shed 10 centavos to finally breach the 51:$1 level and close at 51.08:$1.

It was a fresh almost 11-year low for the peso, the weakest since Aug. 28, 2006’s close of 51.21:$1.

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At the Philippine Dealing System, the peso reached an intraday high of 50.9:$1 after opening at 50.95:$1.

The total volume traded dropped to $291.5 million from $690.1 million last Friday.

The Philippine peso is expected to remain the worst performing currency in the region until yearend as it bears the brunt of “intensifying” imbalances in the economy brought about by robust growth in recent years, the research arm of banking giant ANZ said.

“The Philippine economy has undergone a structural improvement in the last decade. Potential growth is around 6.5 percent currently, more than double what it was during the 1990s. However, the recent period of strong growth has resulted in the build-up of imbalances in the economy, which in our view are intensifying,” ANZ Research economists Sanjay Mathur and Eugenia F. Victorino said in a report titled “Philippines Insight: Intensifying Imbalance.”

ANZ said its view of intensifying imbalances was based on the performance of the following three interrelated indicators: rising credit intensity; persistently high exposure to the real estate sector alongside rising property prices; and deterioration in the external position.

“Credit has been growing by double digits since 2011 albeit with considerable volatility. As a consequence, the credit impulse measured by the ratio of the absolute annual change in credit to nominal GDP [gross domestic product] has increased at a rapid clip. Barring a brief dip in 2014, the increase has been continuous,” ANZ noted.

While other economists supposedly do not find rapid credit growth as a cause for concern especially as total credit as a share of Philippine GDP remained at a low of 46 percent, ANZ said it deemed that “the pace of credit expansion is an equally important determinant of the efficiency of resource allocation.”

“We also note that the annual increase in the credit-to-GDP ratio in the Philippines has frequently hit 3 percentage points, a level that calls for vigilance, according to the International Monetary Fund’s assessment of financial stability,” ANZ added.

ANZ was also worried about the elevated lending to the real estate sector, which for ANZ showed that “a leveraged cycle of property price expansion has taken hold in the Philippines.”

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“Credit to the real estate sector, though still within the prescribed limit of 20 percent of overall lending, has been outpacing that to other sectors. There appears to have been some deceleration recently but that is largely a result of a high base effect rather than a genuine slowdown,” ANZ said.

Also, ANZ was concerned about the current account deficit as imports outpace exports amid the need for more capital goods to build more infrastructure, including a flurry of residential projects, amid strong demand and investment.

Although trade deficits are generally been the norm in the Philippines, remittances from overseas Filipino workers and business process outsourcing receipts had offset them such that the current account remained in surplus. From the fourth quarter of 2016, the situation changed. Inflows from these two sources were no longer sufficient to fully offset the widening trade deficit,” ANZ said.

The bank lamented that at present, “monetary policy remains focused on pushing ahead with growth rather than curbing these imbalances.”

“Although macro-prudential standards have periodically been tightened, the central bank has resisted hiking rates,” ANZ noted.

“Considering the Bangko Sentral ng Pilipinas’ hesitation to tighten monetary policy, it is likely that these imbalances will persist. As a result, it will be the Philippine peso that would need to bear the burden of adjustment. The deterioration in the current account since 2015 has already led to a weakening peso. With the current account now slipping into deficit, pressure on the peso will remain,” according to ANZ.

“To fund the current account deficit, the Philippines would need to rely more on portfolio inflows. However, unlike India and Indonesia, which run deficits that are easily funded by strong portfolio inflows, the Philippines does not attract large inflows. The small size of its domestic equity and bond markets, and the low yield it offers as well as being absent from global benchmarks, is a handicap,” ANZ said.

“The peso is the region’s worst performing currency year-to-date. In fact, the peso’s depreciation would have been larger in the absence of intervention by the BSP. The scale of intervention can be gauged from the fact that gross international reserves had declined from a peak of $86.1 billion in September 2016 to $80.8 billion in July 2017. This decline is in stark contrast to the rest of the region which has seen reserves position improve. Absent of any other policy responses, further peso depreciation is likely,” ANZ warned. JPV

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