Foreign exchange seen above P50:$1 this year

Development Bank of Singapore (DBS) said it has kept a negative medium-term outlook for the Philippine peso amid the widening budget deficit.

In its latest market research, Southeast Asia’s biggest lender said the peso does not perform well when fiscal worries increase, adding the slowdown in remittances from overseas workers was also a factor in the weakening of the local currency.

DBS also said the market doesn’t approve of the government’s need to float global bonds when its latest balance of payments registered a deficit from debt repayments.

With this, the bank keeps a moderate depreciation profile for the peso, and sees the local currency rising to 50 for every US dollar by end-September and to 51.5 by end-March next year.

At the Philippine Dealing System, the peso closed at 48.695 to the greenback from Friday’s 48.430 finish. It opened at 48.45 and strengthened to 48.34 before the day’s end. Trading volume jumped to $857.5 million from $527 million last weekend.

“Corporate demand basically [is what] drives [the peso to close lower against the dollar], plus commodity issue like New Zealand. And the euro also has an impact,” Marcelo Ayes, Rizal Commercial Banking Corp. senior vice president, said.

The government on Wednesday announced that the budget deficit widened to P53 billion in March, the biggest monthly shortfall since 1994. This pushed the funding gap in the first quarter to P120 billion, higher than the programmed deficit of P110.1 billion for the quarter, and more than double last year’s P51.6 billion.

Meanwhile, the impact on the local currency bond market, however, was limited as the government increased its overseas debt sales this year to P174.9 billion from an earlier target of P147.4 billion, even as it limited its domestic bond sales to P439 billion from P442 billion, the DBS said.

The Singaporean lender said that while the domestic bond sales target has been reduced, pressure on the 10-year yields and risks to the government budget deficit remained high. –Lailany P. Gomez, Reporter, Manila Times