Peso recovers slightly on ‘Brexit’ delay; gov’t cites positive impact of weakness
THE PESO saw a slight correction against the dollar yesterday on the back of profit taking and after a leaked memo announced that the United Kingdom (UK) has no plans as of yet on its move to exit the European Union (EU).
The peso ended at P49.17 against the greenback on Tuesday, three centavos stronger than the seven-year low close of P49.20 per dollar logged the prior day.
The peso opened the foreign exchange market at P49.13 against the foreign unit, while its low for the day logged at P49.27. Its strongest intraday level was at P49.05 per dollar.
Dollars traded decreased to $600.9 million from $661.85 million during the previous session, data from the Philippine Dealing & Exchange Corp. showed.
“The dollar corrected across the board, but in the afternoon the foreign unit weakened against euro and sterling amid a delay in the decision of the UK to leave the EU,” trader said in a phone interview yesterday, referring to a leaked memo reported online about a delay in Britain’s execution of a June 23 decision to exit from the EU.
“The leaked memo was what caused the dollar to weaken so we saw a mini sell-off in the afternoon,” the trader added.
BBC UK reported that the leaked memo, entitled “Brexit Update” dated Nov. 7 said the British government has “no overall ‘ Brexit’ plan” amid disagreements among members of the cabinet for six months regarding the UK’s strategy in leaving EU.
The memo suggested that “it will take another six months before the government decides precisely what it wants to achieve from ‘Brexit’ or agrees on its priorities.”
It also recognized Cabinet splits between Foreign Secretary Boris Johnson, Brexit Secretary David Davis and International Trade Secretary Liam Fox on one side, and Chancellor Philip Hammond and Business Secretary Greg Clark.
Meanwhile, another trader said: “The peso strengthened slightly primarily because of profit taking after dollar’s recent surge.”
“The peso’s appreciation was limited, as investors were still generally risk averse amid political uncertainties in the US and increased bets of a US interest rate hike this December.”
For today, one trader sees the peso trading within the P48.90 to P49.30 range while the other trader said the pair might move between P49.10 and P49.30.
“There might still be a bias in favor of the peso due to bets of
softer US retail sales and profit taking ahead of the Philippines’ third-quarter growth report,” one trader noted.
NET POSITIVE IMPACT
But a weaker peso is unlikely to pose a negative impact on the Philippines, economic managers said yesterday, noting that the depreciation could be temporary as market players await a clear policy direction for the United States.
Members of President Rodrigo R. Duterte’s economic team said the country has a lot to gain in the face of a stronger dollar.
“We have the imports, exports, and the foreign exchange sectors — I think it is sort of balanced,” Finance Secretary Carlos G. Dominguez III told reporters on the sidelines of the Senate budget deliberations on Tuesday. “We can’t say it is 100% bad for us because for some sectors, it’s very good — like the OFWs (overseas Filipino workers), the BPOs ( business process outsourcing), and the exporters of farm goods and semiconductors.”
“But for importers that is not so good, especially now because we are importing capital goods — and that is a very good sign because that means to say they are investing in new capacity. That might cost a little more, but overall I think it’s positive for the Philippines — or at least, it’s not so negative.”
For his part, Budget chief Benjamin E. Diokno said he expects the peso to eventually return to the P48 level versus the greenback, which would match the high end of the government’s P45-P48 assumed range for the year.
“We are happy with our assumptions. Even at P50:$ 1, I think it will return to more or less around P48. This is just a market reaction,” Mr. Diokno said. He noted that the inter- agency Development Budget Coordination Committee, which he chairs, will keep its peso forecast for the year, but will arrange a review for 2017 and 2018 assumptions by the “first week of December.”
On balance, the Budget chief said a weak peso would spell a net increase in revenue collections by some P7.2 billion. He said a P9.2-billion increase in Customs collections can be expected for every peso depreciation as these would drive up import values, against additional costs for debt payments at around P2 billion.
“Depreciation is not necessarily bad for us... On the net, for very peso depreciation, the impact on the budget would be P7.2 billion reduction in the deficit. We are not concerned about that,” Mr. Diokno added.
Meanwhile, Socioeconomic Planning secretary Ernesto M. Pernia downplayed negative sentiment surrounding a Trump presidency in the US, saying that the Republican is unlikely to follow through on his string of protectionist proposals: “He will adjust. President [ Donald] Trump will be different from the candidate Trump.”
Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco, Jr. said on Tuesday that the peso moved in sync with regional currencies against the dollar’s strength amid expectations that future US policies would lead to higher yields there, which has driven capital outflows.
AMLC, BSP ISSUE
Separately, Finance chief Mr. Dominguez said they are still to “discuss” with his colleagues regarding Mr. Duterte’s tirade against the BSP and the AntiMoney Laundering Council (AMLC) as to what the President was referring to in saying that the agencies were “difficult to deal with.”
“The AMLC operates independently, so I respect that but I have to ask my colleagues who deal with AMLC and ask them what really the problem is,” Mr. Dominguez said, referring to the heads of the Insurance Commission and the Securities and Exchange Commission which are under his watch.
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