Banker warns weak peso to hike inflation

CEBU, Philippines — While the further weakening peso is boon to dollar earners, this will likely push up consumer prices, a local bank executive said.

Former Cebu Bankers Club president Maximo Eleccion said while the weak peso is beneficial to dollar earners such as overseas Filipino workers and their families, exporters and business process outsourcing (BPOs) firms, this might trigger higher consumer prices.

"The dollar earners are all smiles with peso dollar exchange hitting the P52-level. They stand to benefit the higher exchange rate.  This, however, has adverse effects," Eleccion, who is Visayas area head of BPI Family Savings Bank, told The FREEMAN yesterday.

The weak peso, which has remained at the P52-level to a dollar as of yesterday, is likely to trigger higher prices of basic commodities and other imported goods.

"Thus would cause higher inflation rate," Eleccion said.

As of yesterday afternoon, the peso was trading at P52.12 to a dollar.

The bank executive said that if inflation rate rises, interest rates would also possibly increase both in loans and deposits.

He said the country's dollar denominated loans would also now be higher.

"While we stand to borrow more because of the Build Build Build program of the government, it would mean bigger and higher loans," Eleccion noted.

The rise in imports with the government’s massive infrastructure spending has partly been blamed for the continued weakness of the peso.

The country’s trade gap, or the difference between import bill and export receipts, has widened from only $12.2 billion in 2015 to $29.8 billion in 2017 and is projected to reach $31.3 billion this year.

The trade gap also eclipsed remittances from overseas Filipinos, which reached $27.6 billion and are projected to amount to $28.4 billion this year.

Economists had said the Philippines must allow a modest and manageable depreciation of the peso.

The peso, which has been Asia's worst performing currency so far this year, has been on a steady decline since early January after it briefly strengthened to P49 to the dollar.

The peso also languished near its lowest levels in 12 years against the dollar early this week after the Bangko Sentral ng Pilipinas' surprise cut of the reserve ratio requirement (RRR) for banks last week.

The Monetary Board last week cut the reserve ratio requirement by 1 percentage point, a move that would add more money into the financial system.