The peso-US dollar exchange rate --- largely steady in the first quarter – is expected to start to appreciate by end-March as the economy shows more signs of a rebound, according to a Metrobank unit.

First Metro Investment Corp. (FMIC) and research partner University of Asia and the Pacific (UA&P) said the exchange rate “should have a slight upward bias as the economy revs up” by the end of the first quarter and it is cautiously optimistic that with the economy already improving in the first three months of the year and could accelerate as more lockdown measures are relaxed with the COVID-19 vaccine rollout, they will also see some gains in corporate earnings which will also support the peso. 

“Although we think that the Philippine economy could show some bounce in the first quarter 2021 and that volatility will stalk the local market for most of the first half, we have guarded optimism looking forward,” it added.

The peso has been hounding the P48-level for most of 2020, the first pandemic year.

“The exchange rate will tend to flatten in the first quarter with a slight upward bias as the quarter ends,” according to FMIC-UA&P’s latest “Market Call”. The peso will appreciate as economic rebound “will likely gain traction by the second quarter.”

“GDP gains will accelerate slightly in the first quarter keeping it in negative territory, as the quarantine restrictions ease a bit. However, many workers may hesitate to work in site while IATF takes time to unify cities/municipalities’ procedures, stifling the supply chains’ rebuilding. This will make cost-push inflation to accelerate for the rest of the first quarter while relief may be less dramatic starting the second quarter.” As for exports, FMIC-UA&P said this may have a “tad faster pace” as economy improves while remittances sent by overseas Filipinos “should remain positive” lending more support for the local currency as the year progresses.

The peso-US dollar rate’s upward bias will start to manifest as the economy’s aggregate demand continues to rise, and balance of trade deficits close in at $2.5 billion per month, according to the report.

Citing the exchange rate’s 30-day moving average (MA) which the report noted was “hugging closely to actual daily trades while crude oil prices climb and the economy getting back on track” then the exchange rate based on the MA “may start to rise before the first quarter ends”.

So far, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno said the peso has remained stable, averaging at P48.65 at the start of this month.

Diokno reiterated that the peso is still one of the strongest currencies in the world amid the pandemic.

“The country’s strong macroeconomic fundamentals, low debt-to-GDP ratio, build-up of gross international reserve, and resilient banking system are expected to further boost the strength of the local currency,” he said in his presentation during a joint Foreign Chambers of the Philippines webinar on Tuesday.