The weakness of the peso remains manageable, but policymakers must not be complacent because of its possible negative impact on the economy, global consultancy firm Capital Economics said in a report over the weekend.
“Subdued inflation and a relatively low level of foreign currency debt mean the weakness of the Philippine peso, which has recently been hitting multi-year lows against the US dollar, is not a major threat to the economy,” Capital Economics said.
Inflation in the first half averaged 3.1 percent, slightly higher than the midpoint of the target range of 2 percent to 4 percent this year.
“In fact, policymakers appear to be welcoming the boost the weaker currency is giving the country’s exporters,” it said.
The peso closed at 51.17 against the US dollar on Aug. 31. Capital Economics estimated the peso was down nearly 9 percent against the dollar over the past year, making it by some distance the worst performing Asian currency over this period.
Experts and even central bank officials said earlier a sharp widening of the country’s trade deficit was the key factor behind the decline in the peso that pushed the current account into the negative territory.
Capital Economics warned policymakers should no be complacent because of two possible channels through which a weaker currency could pose a threat to a country.
The first was by pushing up the cost of imports, which could add to inflation, and the second by increasing the local currency value of a country’s foreign-denominated debt.
“There is little indication that policymakers are concerned, and there are in fact signs that policymakers are welcoming the weaker peso,” Capital Economics said, citing the recent remarks made by Bangko Sentral Governor Nestor Espenilla Jr. when he said the country was “on the right track” amid the weakness in the currency because macroeconomic fundamentals remained solid and strong.
The peso fell to its weakest level in 11 years to 51.49 to a dollar on Aug. 18, 2017, at the height of the tensions between the United States and North Korea. But it partially recovered as the tensions eased in the Korean peninsula.
Espenilla warned that Bangko Sentral would not allow speculators to manipulate the movement of the peso to their benefits, saying the regulator remained ready to use its ample international reserves and deploy its full policy and regulatory arsenal if necessary.
He said he believed the peso had sufficiently adjusted and could be expected to regain relative stability in the days ahead.
The peso hit an all-time low of 56.45 a dollar in August 2004.