Weak dollar to boost PHL, other Ems–moody’s

THE Philippines will stand to benefit from a potentially prolonged dollar weakness, as it will translate to lower peso values of its foreign currency liabilities, Moody’s Investor Service said in a recent assessment.

“Some market experts have suggested that a period of prolonged dollar weakness could be on the horizon. While this would weigh on the profitability of some companies with significant US dollar revenues, it would lower debt-servicing costs for Asian issuers,” Moody’s said.

“On the sovereign side, those with large foreign- currency liabilities— e.g., Sri Lanka, Indonesia and the Philippines whose foreign currency debt accounts for more than a third of total debt— could potentially reap savings from the weaker dollar,” it added.

The local currency has been enjoying its strength against the dollar in recent months. In September, the peso appreciated by 0.7 percent to average P48.51 to a dollar, from averaging at P48.84 to a dollar in August. The volatility measures also eased to 7.6 percent in September from 22.5 percent as it traded narrowly between P48.37 to a dollar and P48.63 to a dollar during the period.

Latest data from the Bankers Association of the Philippines (BAP) showed the peso traded at P48.395 to a dollar on Monday.

For comparison, on October 25 of last year, the peso closed trade at P51.135 to a dollar, appreciating from P51.24 to a dollar from its previous trade day. The total volume was at $1.396 billion. This is about P2.75 added in peso value to the dollar in a year’s time.

Allianz Global Investors Asia Pacific Senior Economist Christiaan Tuntono echoed this view, adding that a weak dollar may also drive positive sentiment to emerging market economies such as the Philippines.

“A weaker US dollar would reflect the relative outperformance of emerging markets [EMS] compared with developed markets; this outperformance could also be the result of stronger global trade. We anticipate that the weakening of the US dollar is likely to coincide with the world economy gradually stepping out from the impact of Covid-19, and global trade recovering from its current state,” Tuntono said.

Moody’s, however, stressed that even in the event of prolonged weakness in the US dollar, its status as a global reserve and transaction currency is secure for now.

“As the durability of rival platforms and international financial arrangements remains uncertain, the pace of transition out of the dollar will likely be gradual and unlikely to dampen its dominance,” Tuntono said.