Peso-dollar trading over the past months has shown continued depreciation in the local currency in what the central bank sees as a result of negative market sentiment across Asia, but which private analysts view as being exacerbated further by political uncertainty ahead of next year’s elections.
The peso’s decline hit a new five-year low of P46.81 to $1 on August 24. By September 3, Thursday, the rate has firmed slightly to close at P46.73.
Bangko Sentral ng Pilipinas (BSP) Deputy Governor Diwa Guinigundo said market sentiment across the region remains negative.
“It’s a regional phenomenon. People are speculating that the US dollar—because of the pending normalization in the US [economy and financial markets]—will continue to strengthen against the regional currencies, including the Philippine peso,” Guinigundo told reporters in an informal discussion late Wednesday.
“We are affected by that mentality which prevails in the foreign exchange markets today,” he added.
Being a small open economy, the Philippines is prone to such volatility—the occasional weakening and strengthening of the peso against the US dollar, the BSP official said.
“I have always maintained the position that the peso has the fundamental basis for stability, such as: remittances and business process outsourcing. On top of that there are bonuses from tourism, exports (particularly manufacturing), and tourism,” he said.
Guinigundo stressed what is important is for investors to realize the fundamental health of the economy.
“But because the Philippines has fundamental basis for stability, we always say that once the market is able to digest what is happening abroad and here in the Philippines… they should be able to think twice before leaving the Philippine markets,” he added.
Politics affects peso
Besides the volatile external environment, however, political uncertainty about the next administration on the local front adds to pressures weighing on the peso, said an analyst from ING Bank Manila.
The 2016 election candidates for the top government posts are expected to file their certificates of candidacy with the Commission on Elections by late October.
Noting that political surveys are also coming out this month or early next month, ING senior economist Joey Cuyegkeng said any uncertainty over who is in charge in leading the country weakens the currency.
“The Philippine peso is unlikely to go against this norm. Recent actions of frontrunners in the presidential race have not been encouraging…,” he said.
As a result, the peso could weaken to the P47.00 level in the near term, Cuyegkeng forecasts.
“External developments and local political developments may lead the market to keep testing the upper end of the range, especially if US labor data surprises on the upside,” he added.