Marcos economic team sees weaker peso, slower inflation for 2023

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Metro Manila (CNN Philippines, June 9) — The administration's economic managers have revised some of their macroeconomic assumptions, narrowing their forecast range for the peso and inflation.

The interagency Development Budget Coordination Committee (DBCC) now expects the peso to trade between 54 and 57 against the US dollar this year, with the lower end of this range weaker than the 53-to-the-dollar foreign exchange assumption of the DBCC during its April review.

The economic team did not explain why it changed the forex forecast, but central bank governor Felipe Medalla on Thursday said that wider interest rate differentials between the US Federal Reserve and Bangko Sentral ng Pilipinas (BSP) policy rates could exert pressure on the peso.

Dollar-denominated assets tend to be more attractive to investors seeking higher-yielding investments with lower risk.

With investors uncertain whether US interest rates will further rise or stay where they are, that leaves peso-denominated assets paying a lower premium and consequently, hurting the Philippine currency.

The DBCC only said that the peso could strengthen to as much as P53 against the greenback by 2024 until 2028. The peso-dollar exchange rate was P56.05 at the spot currency market on Friday’s close of trade.

Meanwhile, economic managers also recast their inflation forecast to a narrower band of 5%-6% this year from the previous assumption range of 5%-7% given easing inflation readings in the past four months.

The central bank’s official target for the year is 2% to 4%.

The growth target for 2023 was kept within 6% to 7% range.

“The reason we kept the target… We do recognize the effect of the external environment. On the other hand, the performance of the economy in the first quarter is much more improved than what most of us anticipated,” said National Economic and Development Authority Secretary Arsenio Balisacan.

“We have taken into account the El Niño although the impact won’t be as bad. Overall, putting all these factors together, we believe 6% to 7% is very much manageable," he said.

Goods exports and imports growth projections for this year were revised downwards to 1% and 2% from 3% and 4%, respectively, following the trend in near-term global demand outlook and trade prospects.