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Fitch research lowers peso target vs. US dollar to 50.75 from 49.75: Worst performing currency in Asia


BMI Research adjusted its end-2017 forecast for the Philippine peso against the US dollar from 50 to a greenback to 50.50 but stressed that it remains positive on the local currency ?in total return terms.?

In a research note, one of the units of Fitch Group said it continues to have ?neutral view? on the local currency, which is seen to average at 50.75 to a dollar in 2018, a depreciation from its earlier forecast of 49.75.

?While we no longer forecast slight appreciation for the peso in spot terms over the coming quarters, we remain bullish on the currency in total return terms,? it said.

The peso ended last week at 50.47 against the greenback, a tad better than its 50.53 finish last Thursday.
It opened this week?s trading at 50.45, way better than its 50.60 start in the previous session.

BMI noted that the local currency is one of the worst-performing Asian currency to date after breaking the 50-level last June but pointed out that ?it has still outperformed the dollar in total return terms? in line with the research firm?s projection.

?While there is scope for further spot weakness over the coming months given rising real rates in developed markets, we do not expect this weakness to be excessive,? it said.

Last June,, the Federal Reserve hiked its key rates by another 25 basis points to one to 1.25 percent. It is the third increase after the same amount last December and March.

Some analysts still consider another hike in the Fed rates this year given the hawkish statements from Fed officials.

However, BMI said it is not among those that forecast another Fed rate increase this year.

It, on the other hand, projects the Bangko Sentral ng Pilipinas (BSP) to hike its policy rates by 50 basis points before the end of this year.

To date, the BSP?s overnight borrowing or reverse repurchase (RRP) rate is three percent, the overnight lending or repurchase (RP) rate is 3.5 percent and the rate of the special deposit account (SDA) is 2.5 percent.

BMI said the projected hike in the BSP rates ?should see real interest rate spread move in favour of the PHP.?
?While we are revising our forecast for the peso to reach PHP50.50/USD at end-20 17, up from USD50.00/USD previously, we remain constructive on the unit in total return terms,? it said.

It said the balance of risks on the local unit ?are more or less balanced? with manageable inflation, strong domestic output, steady remittance inflows and strong foreign direct investment inflows on one hand and the military conflict in Mindanao, President Rodrigo R. Duterte?s war on drugs, and political opposition in the legislative branch on the other. (PNA)

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