Weak peso actually good for key economic drivers
While so much attention has recently been put on the depreciation of the peso, the president of the Cebu Bankers Club has asserted the trend is benefiting key drivers of the local economy.
CBC President Mario Fritz Palileo said that one of the implications of the peso's depreciation is the increased funds of families of overseas Filipino workers (OFWs) earning dollars abroad.
"It is a welcome (development) to our OFW families. Their remitted US currency can now have more value thereby increasing their (families) spending power, which will also increase our household consumption on the economic formula for GDP (gross domestic product)," Palileo, who is assistant vice president at Unionbank of the Philippines, told The FREEMAN.
The bank executive added the peso's current trend also gives a boost to local exporters.
"This will also be a welcome for our exporters and our foreign owned BPOs (business process outsourcing companies) because their US currency can now buy more Philippine pesos and improve profitability.
However, the trend is a disadvantage to importers, he said.
"Companies that rely more of imported raw materials will have to spend more and will result in lower profitability," he added.
Palileo further said the depreciating peso is also those availing of US dollar denominated loans.
"They will have to pay more to purchase US dollars to pay interest or principal for their bank loans," he noted.
As of noon yesterday, the peso traded at P51.118 against the dollar.
Despite the peso's current state, the bank official believes the country's economic fundamentals remain sound.
Quoting Bangko Sentral ng Pilipinas Governor Nestor Espenilla, Palileo also said the central bank does not "foresee a sharp decline on the peso versus the dollar as the economic fundamentals remain very solid and very strong."
The Philippine peso started to depreciate versus the US dollar last year when the US Federal Open Market Committee (FOMC) started to raise interest rates.
"The exchange rate for currencies is affected by supply and demand. When the FOMC raised interest rates, investors saw that the US economy is starting to pick up. These foreign investors started to pull out their funds in the Asian countries like the Philippines and transferred it to the US. This move created a demand for the US currency which made the US dollar appreciate," Palileo explained.
"Also economic data released by the US indicating a positive increase in NonFarm Payroll increase investors confidence towards the US economic performance," he added.
The CBC official also cited the geopolitical tensions happening between the US and North Korea "with the latter, being a threat by test firing missiles into the direction of Japan which increased volatility in the exchange rates and the US being a safe haven for investors, they moved funds to the US."
Citing the International Monetary Fund's projection, he said the Philippines' economic growth prospects remain optimistic.
The government is targeting gross domestic product (GDP) will grow by 6.5-7.5 percent this year IMF expects growth to hold at 6.8 percent in the medium term.
Key to sustaining the Philippines' growth momentum is the enactment of the tax reform, which is seen vital to fulfill the current government's aggressive infrastructure spending, boost investor confidence and help insulate the economy from external economic and financial shocks.