Philippine Peso Remain Strong Due to Weak Dollar and Low Imports
Philippine peso zoomed to 48 against the U.S. dollar. It has gained strength due to the lack of demand for other currencies amid global recession.
Stack of Philippine peso bills. Department of Budget and Management
Economists are expecting that Philippine peso (PHP) will remain strong until the end of 2020 despite the havoc within the Philippine economy 'caused by the coronavirus pandemic.
Michael Ricafort, chief economist at Rizal Commercial Banking Corp., said that the peso will continue to stand its ground until 2021, due to low imports as a result of a slowdown in economic activity, weak dollar, and record high gross international reserves (G.I.R.).
Mr. Ricafort attributed the unit's appreciation during the day to the fresh 50 basis points reduction in the Bangko Sentral ng Pilipinas' (B.S.P.) key policy rates. There was a decision to further support the domestic economy from the impact of the coronavirus pandemic.
He added that the current economic activity and weak dollar rate is a great foundation to support Peso. The local currency closed at 48.62 last week. It is the strongest level in nearly four years or since the greenback in November 2016 when it closed at 48.585 to $1 in the U.S.D.
However, Mr. Ricafort said that the ongoing economic recovery, as well as the slowdown of Covid-19 cases in the Philippines, could curb the further appreciation of the local currency against the dollar.
In which, Mr. Ricaford may be saying that the Philippines needs a disaster like the Coronavirus pandemic in order to stand up against the U.S.D. or other foreign currencies.
Meanwhile, ING Bank N.V. Manila senior economist Nicholas Mapa said the peso is still one of the best performing currencies as the country's external position showed a surplus in the current account partnered with foreign borrowing by the Philippines government.
"The big story surrounding the peso is the substantial drop in import activity, which has helped the peso appreciate, but at the expense of capital formation and potential output," Mr. Mapa said.
In early August, the Philippine peso zoomed to 48 against the U.S. dollar. It has gained strength due to the lack of demand for the dollar and other currencies amid the global economic recession.
A strong or competing peso means that the Philippines can purchase imports at a more attractive rate. Although, it may also mean that the country's exports would not be enticing for other countries, since the exports would be more expensive.