Is a strong peso net positive for the Philippines?

The Philippine peso appreciated against its US counterpart for the past five trading days before losing steam on Thursday, but economists believe a stronger peso may not be all positive to the general public.

The local currency lost 49 centavos to close Thursday at P55.29:$1 from Wednesday’s finish of P54.8:$1, which was the local currency’s strongest performance in six months.

Rizal Commercial Banking Corp. chief economist Michael Ricafort considered the depreciation as a “healthy upward correction,” following the recent dovish signals, particularly on the possible cut in the first half of the year.

Ricafort said this could then bring about a possible pause in the Bangko Sentral ng Pilipinas’s (BSP) policy tightening, and a possible intervention through purchasing US dollars from the market to boost the gross international reserves (GIR), especially if there is “excess” peso appreciation.

He noted, however, that the peso continues to be at five-months highs against the US dollar, after hitting a fresh record-low of P59:$1 several times last year. Central bank officials believe the “worst is over the for the strong dollar.”

A stronger peso would be beneficial “in terms of lower importation costs/prices and overall inflation passed on to the general public,” Ricafort said in a mobile message.

His sentiments were mirrored by ING Bank Manila senior economist Nicholas Antonio Mapa, who said that imports would cost less, but exports would cost more and therefore lose their competitive pricing versus the country’s peers.

“A stronger currency may translate to less imported inflation, a development that would benefit all Filipino consumers. On the flip side, however, a stronger currency would make our exports less attractive relative to competing peers,” he said in an emailed commentary.

Latest data from the Philippine Statistics Authority (PSA) showed that the country’s trade deficit stood at $3.677 billion in November, as the country recorded $10.777 billion in imports, and while exports were $7.100 billion.

Mapa’s statement was echoed by John Paolo Rivera, an economist at the Asian Institute of Management (AIM), who said that importers would gain from a stronger peso as the cost of products would be relatively cheaper, while exports would lose as they would sell at lower rates.

“A stronger peso benefits the consumers because most products in the Philippines are imported, they are relatively cheaper,” he said in a separate mobile message.

However, Rivera said overseas Filipino workers (OFWs) would lose in a stronger peso as the value of their foreign currency would be weaker in the Philippines.

“Bottomline, if the public is able to afford basic goods and services, then everyone is better off than a weaker currency but soaring prices,” he said.

For University of Asia and the Pacific economist Victor Abola, however, a weaker peso would be “net positive” in general for the Philippines with an estimated population of 110 million.

“It is net positive. Contrary to popular belief, the depreciation of the currency actually is positive for the Philippines because of one, you have around 70 million people who benefit from it,” he said in a separate briefing.

“For every peso, the OFWs, your exporters, even your BPOs (business process outsourcing) are encouraged to increase salaries,” he added.

Abola also cited the “misconception” of the pass-through effect of the depreciation of the Philippine peso to inflation, as he said that every 5% depreciation would translate to a 0.2 percentage point increase in inflation.

“It’s not something that is worrisome. If you keep your depreciation rate moderate, that is not destructive. This is our experience. We’re quite unique in the emerging market space because we have a lot of OFWs,” he said.

Inflation accelerated to a fresh 14-year-high of 8.1% in December to bring the full-year 2022 average to 5.8%, higher than the central bank’s target range of 2% to 4%.

Moving forward, Abola expects the Philippine peso to range from P57:$1 to P59:$1 this year, while the inter-agency Development Budget Coordination Committee (DBCC) expects it to range from P55:$1 to P59:$1.—LDF, GMA Integrated News