Peso remains strong vs other currencies

MANILA, Philippines – The peso remains “very strong” when compared with other currencies and its recent weakening against the dollar should be a welcome development, Finance officials said yesterday.

“While the peso has moderately depreciated in nominal terms in recent weeks, the peso in real terms is still very strong which deters competitiveness,” Finance Undersecretary and chief economist Karl Kendrick Chua said in a statement.

Finance Undersecretary Gil Beltran agreed, saying the local currency’s drop so far this year has still not matched its appreciation in previous years.

“The peso is just seeking its appropriate value, given that it has appreciated significantly in previous years,” Beltran said.

The local unit moved sideways when it opened yesterday from its close of 48.17 last Tuesday, which was the weakest since the global financial crisis in September 2009.

Earlier, Budget Secretary Benjamin Diokno said the weak peso should not be blamed to President Duterte’s harsh rhetoric against the US and European Union and policy swings in recent weeks.

For Chua, the currency’s two-percent depreciation since the first full day of Duterte on July 1 was in fact “in line with the global currency market” performance.

According to him, the peso’s downward trend against the greenback was matched by the Japanese yen’s two percent drop and was even tamer than Australian dollar’s 2.2 percent, Malaysian ringgit’s 3.5 percent and the pound’s 2.7 percent.

“Still, we should be prudent to ensure that volatilities are managed,” Chua said.

Another data from the Bank of International Settlements, meanwhile, showed the Philippines continues to have the strongest currency among major economies in Southeast Asia.

Using the real effective exchange rate (REER), the peso averaged 113.12 as of August against a basket of currencies reflecting mostly its major trading partners.

This is much higher than Indonesian rupiah’s 91.83, Malaysian ringgit (88.68), Singaporean dollar (110.4) and Thai baht (99.63), data showed.

REER is a closely-watched gauge by central banks since it reflects the currency’s competitiveness considering trade relations. A higher REER suggests appreciation.

This, in turn, translates to stronger currencies, which effectively trim the value of export, business process outsourcing and remittance earnings when converted. The market however usually follows spot or day-to-day rate, not REER.

“This means the depreciation in recent weeks would help improve export competitiveness and value of remittances, which benefits around 40 percent of the economy,” Chua said.

Beltran, for his part, said the central bank has ample buffer to respond should the peso persists on underperforming versus the dollar.

He cited the country’s record-high gross international reserves of $85.6 billion as of August, which could be tapped to sell dollars for pesos to boost the latter’s demand and strength.