Economic managers assume weaker peso, growth intact until 2018
The peso has suffered a beating in recent months, owing to a confluence of factors such as the investors anticipating — and finally realizing — an increase in US interest rates as well as President Rodrigo Duterte's controversial remarks against the country's allies. File
MANILA, Philippines — The Duterte administration is resigned to the peso dropping to as much as P50 next year until 2018, but said this would not impact the economy's growth prospects or prices of basic goods and commodities.
Only the peso-dollar exchange rate was tweaked at Tuesday's meeting of the Development and Budget Coordinating Committee (DBCC), with economic managers seeing it at a weaker P48-50 to a dollar next year and in 2018.
The original assumption was between P45-48.
"We are comfortable with P50 as an upper bound for the exchange rate basically because we have a steady inflow of dollars," Budget Secretary and DBCC Chair Benjamin Diokno said in a briefing.
"As you may know, we also have hefty reserves," he added.
Despite the peso's weakness, Socioeconomic Planning Secretary Ernesto Pernia said there is "no change" on the growth targets of 6.5 to 7.5 percent next year and 7 to 8 percent in 2018.
Growth, as measured by gross domestic product (GDP), expanded 7 percent as of the third quarter.
"There is no compelling reason to change it up or down," Pernia said in the same briefing.
"Essentially, there are still the same risks and uncertainties in 2017 and thereafter," he added.
The peso has suffered a beating in recent months, owing to a confluence of factors such as the investors anticipating — and finally realizing — an increase in US interest rates as well as President Rodrigo Duterte's controversial remarks against the country's allies.
It closed near the DBCC upper benchmark at 49.999 against the greenback on Tuesday. The peso has so far weakened 6.24 percent since its closing of 47.06 last Dec. 29, 2015.
Diokno said a weaker peso is not seen to increase consumer prices beyond what was originally expected.
The inflation target was kept between 2 and 4 percent for both years. Inflation, as measured by the consumer price index, has averaged below the official target at 1.6 percent as of November.
This, in turn, will allow interest rates, gauged by 364-day Treasury bill to be steady at 2.5 to 4 percent during the same period.
"That was also the expectation of the BSP. Their view was that there will be no change in policy," Diokno said.
The Bangko Sentral ng Pilipinas (BSP) is scheduled to hold its last policy meeting for the year on Wednesday and the market expects it to keep its policy rate of 3.5 percent.
The rate is the level charged by the BSP to banks borrowing from them, which in turn, is reflected in lenders' rates to their credit borrowers. The lower the rate, the cheaper the funding for investments.
For the government, Dominguez said 80 percent of borrowing will be made locally to avoid risks that they become expensive to pay once the peso moves.
Borrowings will finance a budget deficit equivalent to three percent of GDP, steady from the medium-term program.
"The higher investments in infrastructure are already beginning. There will be no crowding out (of private investments)," the finance chief said.
"Just look at our borrowing. We've been borrowing domestically quite large amounts and it's supposed to push interest rates up. But that has not happened," he said.
In addition, a weaker peso is not seen to make oil imports more expensive, with Dubai crude seen to average $40 to $55 per barrel in 2017 and $45 to $60 in 2018.
Declining exports, however, will also not get a boost, with growth targeted at a weaker 2 and 5 percent for both years, respectively. These were down from 6 and 8 percent.
Imports, on the other hand, will rise 10 percent.
"We are also expecting the ease of doing business, including restrictions of foreign investments may be eased by 2018, at least those that can be done through legislation," Pernia said.