The government's economic experts have made adjustments to their macroeconomic assumptions, narrowing their projected range for the peso's value and inflation.
According to the Development Budget Coordination Committee (DBCC), which comprises multiple government agencies, the peso is now anticipated to trade between 54 and 57 against the US dollar this year.
Weaken peso
This revised range is weaker compared to the DBCC's previous estimate of 53 pesos to the dollar, as stated during their review in April.
The economic team did not provide a specific reason for the change in the foreign exchange forecast.
However, on Thursday, Central Bank Governor Felipe Medalla mentioned that wider interest rate disparities between the US Federal Reserve and the Bangko Sentral ng Pilipinas (BSP) policy rates could put pressure on the peso.
Investors typically find dollar-denominated assets more appealing due to their potential for higher returns and lower risk. The uncertainty surrounding whether US interest rates will rise further or remain stable diminishes the attractiveness of peso-denominated assets.
As a result, this negatively impacts the Philippine currency. The DBCC did mention that the peso could potentially strengthen to as much as 53 pesos against the US dollar by 2024 until 2028.
As of the recent spot currency market closing on Friday, the peso-dollar exchange rate stood at 56.05 pesos.
Decrease in inflation rate
Additionally, the economic managers have revised their inflation forecast to a narrower range of 5% to 6% for this year, down from the previous estimate of 5% to 7%.
This adjustment takes into account the recent decrease in inflation readings over the past four months.
The central bank's official inflation target for the year is set at 2% to 4%. The growth target for 2023 remains within the range of 6% to 7%.
National Economic and Development Authority Secretary Arsenio Balisacan explained the reason behind maintaining this target.
He stated that while they acknowledge the impact of the external environment, the economy's performance in the first quarter exceeded their expectations.
Furthermore, they have factored in the potential effects of El Niño, although they anticipate that the impact will not be as severe.
Considering these factors together, they believe that achieving a growth rate of 6% to 7% is highly manageable.
Regarding goods exports and imports, the growth projections for this year have been revised downward to 1% and 2% respectively, from the previous estimates of 3% and 4%.
