In a recent report issued by the Bank of the Philippines (BPI) predicts the peso to slide while the United States Federal Reserve could take a potential rate hike, creating a perfect storm for expats and foreigners living in the Philippines.
The overall prediction rides on reports which show a higher than normal infrastructure spending within the country – adding to the US Federal Reserve raising interest rates.
BPI’s leading economist Emilio Neri Jr. holds strong on his prediction that the Philippine peso is likely to hit P50 rather than P45 versus the American dollar – he also added that his P50 forecast could easily run through 2017.
The U.S. Federal Reserve has hinted at two rate hikes throughout the remainder of 2016 – just recently the Feds decided not to raise rates, leaving the peso closing at around P46 to $1 last week.
Emilio Neri Jr. noted “Despite recent appreciation pressure, the peso is expected to revert toward the P50 handle as the Fed raises rates within the year with more follow through actions in 2017 despite market expectations for the opposite.”
Neri also said that because the Philippines does not export oil, the country is likely to weaken, (this includes other non-oil exporting nations).
He added that weakening economies are especially prevalent when oil exceeds $60 per barrel.
Other Economic Factors
Other related factors to a weakening peso include incoming President Duterte’s intentions to increase spending by a large margin.
Duterte has said that his administration is committed to raising infrastructure spending to 7% of the Gross National Product (GDP). Those plans include $145 billion (USD) in additional funding to meet infrastructure spending.
Duterte also intends to raise spending by using borrowed money – that spending is predicted to be approximately 3% of the GDP of the nation.
Bank of the Philippine Islands (BPI) is the oldest operational bank in the Philippines, and is the country’s third largest bank in terms of assets. Owned by the Ayala Corporation, BPI is based in Makati’s Central Business District. Today it is the largest bank in the Philippines in terms of market capitalization and is the Philippines’ most profitable bank to date.