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Stock Commentary

Rep. Joey Salceda thinks the peso could reach P68/$1

Merkado Barkada
Rep. Joey Salceda thinks the peso could reach P68/$1
If this really were a repeat of the early 80s then we are in for a wild ride: the Philippine Peso went from being worth P7.5/$1 in 1980, to P16.7/$1 by 1984.
Merkado Barkada

Citing measures the U.S. Federal Reserve took in its fight against inflation 40 years ago, House Ways and Means Chairman, Joey Salceda [link], said that there is nothing stopping the peso from free falling to P65-P68 per U.S. Dollar “in the near term”, and that both the President and the BSP are helpless to do anything about it.

Mr. Salceda notes that the US Fed raised interest rates by 6500 basis points in the 80s to combat inflation, and that (so far) the Fed has only raised rates 2250 basis points, implying the Fed might raise by another 4250 basis points. 
 

MB BOTTOM-LINE

To take this at face value, you need to accept so many of Mr. Salceda’s unspoken assumptions.

That the inputs are the same (they’re not; annual inflation is nothing near what it was in the early 80s and there isn’t an unemployment problem), that the Fed started from the same point (it didn’t), and that the Philippines and it’s currency are in the same position relative to the US Dollar (it isn’t).

It also depends on how you define “near term” (Mr. Salceda’s definition seems pretty loose), I’m not saying that he’s wrong, I’m just outlining the ways that his off-the-cuff remakes might not be accurate.

He’s right that the BSP hasn’t traditionally used interest rates as part of its tool kit to bolster the peso’s value, though.

If this were a repeat of the early 80s then we are in for a wild ride: the Philippine Peso went from being worth P7.5/$1 in 1980, to P16.7/$1 by 1984. 

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PHILIPPINE PESO

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