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BMI Research sees PHP to stabilize at P50 vs US dollar in 6-24 months

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MANILA, Philippines -- BMI Research remains optimistic on the peso this 2017 as domestic fundamentals remain strong and continues to support the local currency.

In a research note, the Fitch Group-connected firm has “a slightly constructive view” on the local unit as the peso has stabilized after a volatile performance before 2016 ended, wherein it touched the 50-level to a dollar.

The peso is now back at 49-level and ended Monday at P49.62.

“We believe that risks are now weighted to the upside over the near-term, which is in contrast to the forward market which is pricing in continual weakness over the next 24 months,” the research note said.

It explained that its more positive view on the peso was based on the temporary stop of the slide of the Chinese yuan and the Japanese yen against the greenback.

“This will likely provide some respite for the peso in the coming months,” it said.

However, concerns about the policies of US president-elect Donald Trump and the path of the Federal Reserve rates, with most market players projecting three rate hikes this year as against BMI Research’s projection of two rate hikes, are seen to negatively impact on the peso.

BMI Research eyes the peso to stabilize at 50-level to a dollar in the next six to 24 months.

“Certainly, anchored inflation expectations and a robust economic growth outlook, facilitated by the government’s expansionary fiscal plans, rising foreign direct investment (FDI) and steady remittances inflow are likely to be constructive for the peso,” it added.

Rate of price increases in 2016 averaged at 1.8 percent, below the government’s two to four percent target. The below-target average was due to the low prices of oil in the international market in most of 2016.

However, prices of oil have climbed and this is the reason for the uptick in inflation rate since May last year.

Last September, inflation went up to within-target levels as oil prices continued to rise. It ended 2016 at 2.6 percent.

As of last October, cash inflows from Overseas Filipinos totaled to $22.12 billion, four percent higher than year-ago’s $21.27 billion.

Robust growth of remittances is among the strong pillars of Philippines strong domestic expansion, which BMI Research eyes at over six percent in the coming quarters.

In the third quarter of 2016, the domestic economy churned in a 7.1 percent output, as measured by gross domestic product (GDP), the strongest in the region for the said period.

In the first three quarters of last year, the domestic economy posted a seven percent growth, the upper end of the government’s six to seven percent target.

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