Bilyonaryo Enrique K. Razon thinks the strapping peso could break down soon amid fears that the Federal Reserve will be forced to jack up interest rates to quell inflation brought about by the massive stimulus program .
“The peso is strong because there is little demand for the US dollar which is very weak. That is the only reason why peso is strong. The number to watch everywhere is inflation,” said Razon in a virtual forum.
“With all the monetary easing or printing of money… the US has a stimulus program of almost 25 percent of GDP (gross domestic product) .. . eventually, that will stoke inflation. And if the US interest rates go up, the peso goes down the toilet,” he added.
Investors are closely watching this week’s Federal Reserve policy meeting to see if it would hike interest rates much earlier than expected.
So far, Treasury Secretary Janet Yellen assured investors that there was only a “small risk of inflation” and that she does not does not expect a return to the runaway inflation of the 1970s.”If inflation should surge, we have the tools to address it,” said Yellen.
The peso was one of the most stable currencies in Asia in 2020 as it appreciated by 5.18 percent to P48.03 to the US dollar from P50.66 in end-2019. Fitch Solutions expected the peso to appreciate further to P47.50 in 2021, from its original forecast of P50.10.