Japanese bank sees worst-case scenario for PHL economy

By Beting Laygo Dolor, Editor

MANILA – One of Japan’s biggest investment banks, Nomura, predicts that the Philippine currency will depreciate to P58:$1 by the end of this month. This will mark an all-time low for the peso, which has been declining at a disturbingly steady pace for the past few weeks.

The peso has been flirting with the all-time low rate of P56.45 to the greenback in recent weeks. This lowest level was reached in Oct. 24, 2004, during the time of then President Gloria Macapagal-Arroyo.

In its report released last week, Nomura said the Philippine currency was likely to breach the P58:$1 level by the end of this month.

This, despite the Bangko Sentral ng Pilipinas’ (BSP, the Philippines central banking authority) huge 75 basis point interest rate hike last week.

Said Nomura: “We are first targeting 56.50 and then overshoot to 58 by end-July, although our conviction is lower after BSP’s surprise intermeeting tightening.”

The BSP “surprise” was the biggest basis point rise since the central bank’s adopting an inflation-targeting framework in 2002.

The BSP did not agree with Nomura’s grim scenario, with current Governor Felipe Medalla saying this week that the country’s economy was stable and would continue to expand despite these “challenging times.”

During a lecture organized by the BSP Research Academy and the University of the Philippines School of Economics, Medalla said: “We expect the Philippine economy to sustain its recovery. We note that quarterly private consumption expenditures have surpassed the pre-pandemic levels already and continue to grow as the economy further opens up.”

The BSP shifted to an interest rate corridor system in 2016 to dampen inflation expectations and stabilize the peso/dollar exchange rate.

Prior to the dramatic action taken by the country’s central bank, Nomura said it was expecting a 50 basis point increase, to be implemented in August.

Nomura said the BSP “highlighted that the 75-basis-point hike was driven by concerns over price pressures and spillovers from other countries.”

Those spillovers include the aggressive rate hike by the US Federal Reserve, the surge in US inflation, ongoing recession concerns also in the US, and the Russia-Ukraine conflict which has caused massive repercussions in the global market.

For comparison, the peso began this year at P51 to the dollar. This means that its value has depreciated by more than 10 percent in the span of six months.

Last year, Nomura tagged the Philippines as one of the “troubled 10” among emerging markets, affected by China’s weakening economy.

The 10 nations are Brazil, Columbia, Chile, Hungary, Indonesia, Romania, South Africa, Turkey, Peru, and the Philippines.

The International Monetary Fund also came out with a report recently that warned that the Philippines could follow in the downward spiral of Sri Lanka.