Despite hitting its weakest level in eight, or even 10, years against the dollar this month, the Philippine peso was among the less volatile currencies in Asia, the Department of Finance said, citing data from its latest study.
In a statement over the weekend, Finance Undersecretary and Chief Economist Gil Beltran said the peso has moved generally in line with other Asian currencies—the local unit depreciated by 3.27 percent from November 1 to 24, just slightly more than the average depreciation of 3.26 percent for Asian currencies during the period.
Other Asian currencies had been more volatile. “The Japanese yen depreciated most wildly by 8.5 percent compared with 6.73 percent for the Malaysian ringgit and 3.92 percent for the Indonesian rupiah,” Beltran said. He did not mention the other currencies that registered the least movement.
The overall weakening of Asian currencies vis-a-vis the dollar was an overreaction by fund managers to the prospects of higher interest rates in the US in December, Beltran said.
Citing another period—from 2000 to Nov. 24, 2016, Beltran said that with a standard deviation-mean ratio relative to the dollar of 5.0 percent compared with the Asian average of 7 percent, the Philippine peso has been one of the least volatile currencies.
During this 16-year period, “the most volatile [were]the Chinese yuan (16.3 percent), Indonesian rupiah (11.9 percent) and Malaysian ringgit (11.6 percent). This means that during this 16 year-period, the peso has been moving within 5.0 percent from its average value,” he said.
Not dependent on cheap loans
Several emerging economies with excess savings like the Philippines are not dependent on a regime of cheap financing as a result of the post-2008 financial crisis move by the Federal Reserve to cut rates as a monetary stimulus to spark an economic recovery for the US, the DOF official said.
“Economies like the Philippines are net lenders rather than borrowers. There is, however, an overreaction by fund managers and have lumped all economies into one category without regard to macroeconomic fundamentals,” he said.
With the impending normalization to be undertaken by the Federal Reserve, Beltran said “the days of cheap financing and large capital inflows are coming to an end.”
The Fed would soon end its monetary stimulus program, which it resorted to in 2008 to aid the American economy at the height of the then-global financial crisis, he said.
“Low interest rates were a boon to developing countries with lower borrowing costs and significant inflows of capital,” he noted.
On Thursday, the peso hit the P50:$1 level intraday, the weakest since Nov.11, 2006, when it traded at P50.12:$1. That affirmed analysts’ forecasts: that expectations of higher interest rates in the US and the political noise drowning out the Philippine economic story could depress the peso back to the P48-to-P50 range as 2016 draws to a close.