Weaker peso is good for PHL economy – NEDA’s Balisacan

Don’t worry, Philippine economic managers are saying if the dollar turns stronger in tandem with the US economic recovery.

There is an ample supply of the greenback to absorb external shocks while the peso’s weakness – eventually – bodes well for the economy.

“What many people do not understand is that when the peso falls, domestic industries become more productive,” Socioeconomic Planning Secretary Arsenio Balisacan told reporters on the sidelines of the Bangko Sentral ng Pilipinas’ (BSP) annual reception for the banking community over the weekend.

Balisacan said a weaker peso will benefit Philippine exporters by making their products less expensive and thus more competitive in the global market.

Philippine products will also be more attractive than imports which are now more expensive in peso terms, he added.

For the families of an estimated 10 million Filipinos who work and live abroad, their spending power – fueled by remittances – gets an added boost, the Philippine economic chief noted.

The World Bank estimates domestic consumption – largely driven by remittances and the expanding revenues from business process outsourcing – accounts for 70 percent of the Philippine gross domestic product (GDP).

The peso is currently trading at 45.119:$1 in mid-morning session Monday at the Philippine Dealing & Exchange Corp.

The Philippine peso was last seen trading at the 45:$1 area in September 2010.

Regional weakness

At the same reception, Bangko Sentral Governor Amando Tetangco Jr. noted present weakness of currencies reflects speculations on pace of scale back the US Federal Reserve will impose on its $85-billion a month bond-buying stimulus.

“The weakening of the peso is not totally unexpected – just like the weakening of other regional currencies – because there remains uncertainty [over] the speed and the duration of the Fed tapering that is causing market volatility…” the central bank chief told reporters at the sidelines of the bankers’ night.

“As a result of that, there has been a global portfolio re-balancing,” Tetangco added.

Emerging market currencies – which enjoyed a bonanza of speculative money in light of the 2008 financial crisis – started to get depressed after the Fed heralded an end to its stimulus program, which started with modest $10-billion cut this month.

“Markets are adjusting to the new environment. Its effects on emerging markets would be… some money… leaving or the amount of money coming in is not that much,” Felipe Medalla, economist and member of the policy-making Monetary Board, said on the sidelines of the same event.

Tetangco, who chairs the Monetary Board, maintained that the Philippines is well-positioned to face turbulence in financial markets worldwide.

“The macrofundamentals of the Philippines remains sound. The external liquidity position remains healthy,” he said.

Tetangco noted a projected current account surplus, which “shows that the [inflow of funds] is coming from the real sector of the economy and not just from capital inflow. So, that also gives us a useful buffer against external shocks.”

While some emerging economies like Indonesia and India face something akin to straight-jacket conditions because of current account deficits, the Bangko Sentral expects a $10.4 billion surplus this year.

The projection is narrower than the $11.1 billion currrent account forecast for the whole of 2013, due to higher import requirements for rebuilding areas devastated by Typhoon Yolanda in November.

Policy direction

Medalla said the central bank will maintain a presence in the currency spot market to smooth any volatility in the exchange rate.

“The purpose is to mitigate or reduce volatility and not to tell the market where it should be,” Medalla said.

The Bangko Sentral is widely known to tap agent banks to help stabilize the exchange rate.

Tetangco said the central bank is on its toes when it comes to monetary policy.

“We are not pre-committed to a specific policy direction. What we do is we assess the decision every six weeks and see if the inflation outlook is well-anchored,” he said.

The Monetary Board last met over policy on Dec. 12, and it left the benchmark yield for bank loans unchanged at record lows. – VS, GMA News