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Peso climbs to new four-year high as it nears 47:$1 territory

The peso on Friday climbed to a new four-year high near the 47-a-dollar boundary, bolstered by the improving equities market and narrowing trade deficit.

Data from the Bankers Association of the Philippines showed that the peso closed at 48.06 a dollar on Friday, stronger than its 48.115 a dollar finish on Thursday. It was the local currency’s strongest level since it settled at 47.99 against the greenback on Sept. 23, 2016. Volume turnover reached $783 million Friday, also up from $575 million Thursday.

Bangko Sentral ng Pilipinas Governor Benjamin Diokno said that amid the COVID-19 crisis, the peso remained stable and was one of the strongest currencies in the region.

“The strength of the Philippine peso is reflective of our sound macroeconomic fundamentals, which was achieved through years of resolute structural and economic reforms,” he said.

Diokno expressed optimism that the economy would recover in the coming months from the impact of natural calamities and the COVID-19 pandemic this year.

He said that as restrictions were slowly lifted and economic sectors gradually reopened, “the BSP expects the Philippine economy to bounce back and grow from 6.5 to 7.5 percent in 2021 and 2022.”

“Indeed, we have been through difficult times. Yet, there are signs that the economy is on the road to recovery,” Diokno said in an online forum.

The economy contracted by 10 percent in the first three quarters amid the pandemic, following 21 years of uninterrupted growth.

Diokno mentioned some signs that pointed to economic recovery, including the stable inflation which remained within the government’s target range of 2 percent to 4 percent and averaged 2.5 percent in the first 10 months.

He said even with the huge financing requirements to mitigate the effects of the pandemic, the economy’s debt profile remained manageable.

“While the Philippines’ debt-to-GDP ratio increased to 48 percent as of end-June 2020, this remains below the debt to GDP ratio that was recorded by the country during the fiscal crisis in 2004, which was at 72 percent,” he said.

The country’s total external debt increased only to 24 percent of the gross domestic product as of end-June, a large part of which is in the form of medium-, and long-term loans, according to the BSP governor.

He cited the growth of net inflows of foreign direct investments that increased since May, recording a 46.9-percent year-on-year expansion in August. FDIs are expected to increase by 5.6 percent this year and by 7.0 percent next year.

Personal remittances from overseas Filipinos recorded a 9.1 percent year-on-year growth in September as host economies started to reopen.

“From an earlier projected contraction of 5 percent, year-to-date contraction was only 1.4 percent; full year contraction is estimated at only 2.0 percent. Next year, we forecast remittances to bounce back to 4.0 percent,” he said.

Diokno noted the record gross international reserves of $103.8 billion, equivalent to 10.3 months’ worth of imports of goods and payment of services and primary income, which was higher than the traditional doctrine of 3 months’ worth of imports.

He said the banking system remained resilient, as the non-performing loan ratio of the banking system remained manageable at 3.6 percent as of end-September.

He said that to put things in perspective, the NPL ratio during Asian Financial Crisis were in double-digits.

Banks were also well-capitalized, with capital adequacy ratios above the BSP regulatory requirement of 10 percent and Bank for International Settlements standard of 8 percent.

Topics: Benjamin Diokno , Bankers Association of the Philippines , Asian Financial Crisis , Dollar
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