MANILA — Philippine monetary officials are not worried about the peso’s current rate of depreciation since this was brought about by the demand for the US dollar, in line with the sustained growth of the country’s imports.
To date, the peso has weakened by more than 6 percent against the greenback and is trading at 54-level.
Bangko Sentral ng Pilipinas (BSP) Assistant Governor Restituto C. Cruz said the central bank continues to follow a market-determined exchange rate policy that is why the local unit’s weakness in the past two years “has been largely and in the long run driven by fundamentals.”
“This mainly reflects rising demand for foreign exchange traceable to the surge in imports in support of the growing economy; as well as to dollar debt repayments and prepayments and outward investments,” he said.
The central bank official explained that “as long as these fundamental factors and other legitimate demands remain to be the sources of depreciation pressure to the peso, and that these will not negatively impact both the growth and the inflation outlook, the BSP finds no compelling reason to be worried about the depreciation of the peso.”
The peso’s current weakness is one of the three “growing pains” that the Philippines is currently experiencing as domestic expansion remains robust.
The other two include rising inflation and the country’s current account (CA) deficit, he said.
In the first eight months this year, the rate of price increases averaged at 4.8 percent, higher than the government’s 2 to 4 percent target until 2020.
Last August alone, inflation hit a multiyear high of 6.4 percent primarily due to supply-side factors as prices of rice, fish, vegetable and meat are on elevated levels.
To address the situation, Malacanang has issued several Memorandum Orders (MOs) to ensure that supply, primarily of rice, will be sufficient and prices will go down.
Cruz stressed that the BSP’s policy instruments “are more effective to address demand-side driven shocks.
Thus, the BSP has asked the other economic managers to put in place measures to address supply-side pressures.
This is the reason behind Malacanang’s MOs directing various government agencies to ensure sufficient rice buffer and safe delivery of these from ports to the warehouses of the National Food Authority (NFA) into markets nationwide.
Cruz said “prescribing the wrong medication is almost or at times worse than not taking any medicine to cure an illness.”
“Implementing timely, well-thought out, and coordinated policy response is key in addressing recent inflation upticks,” he said.
On the current account deficit, the BSP executive said having a gap in the current account “is not necessarily a cause for concerns as suggested by underlying trends”, referring to the higher importation growth as the country imports more capital goods as demanded by the growth of the economy.
He also pointed out that the country’s CA deficit “remains financeable” because of structural foreign exchange inflows from Overseas Filipino Workers (OFWs), tourism receipts, the business process outsourcing (BPO) sector, high international reserves and low level of external debt.
“Over time, as investment-led economic activities result in the expansion of the economy’s potential capacity and support the needed infrastructure development, there can be subsequent rise in goods exports, eventually alleviating the current account deficit,” he added. (Joann Villanueva/PNA)
