• Tetangco assures legislators

    ‘Strong fundamentals to cushion peso vs dollar’

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    The Philippines’ macroeconomic fundamentals remain strong and will continue to support the peso against a strengthening US dollar even as the US economic recovery gains headway, the central bank governor told the House of Representatives on Monday.

    Explaining the country’s economic and monetary conditions before members of the Committee on Appropriations, Bangko Sentral ng Pilipinas (BSP) Amando Tetangco Jr. stressed that the economy has been posting positive gross domestic product (GDP) expansion for 65 consecutive quarters from 1999 to 2014 and is set to grow further.

    The central bank expects further GDP growth of between 7 percent and 8 percent this year, Tetangco said, adding that ample liquidity in the financial system not only supports sustained economic growth but provides enough cushion for the peso against any depreciation pressures.

    “On the exchange rate, the peso has maintained its broad stability thus far in 2015 despite some depreciation pressures,” Tetangco said during the 2016 National Budget deliberations at the House of Representatives.

    On average from January to August 7 this year, the peso had lost 2.2 percent of its value compared with the same period last year. The exchange rate on August 6 stood at the weakest level for the peso in over five years at P45.79 against the dollar.

    “The peso depreciation is largely due to the strength of the US dollar, which reflects the gradual recovery of the US economy and the anticipated increase in US interest rates,” he said.

    In the US, second-quarter GDP grew 2.3 percent, indicating accelerated growth from 0.6 percent (revised) in the first quarter. The numbers for the first quarter even had to be revised up to reflect faster growth than what had originally been estimated at negative 0.2 percent.

    Last week the US Fed President of Atlanta said he supports the view that September may be the right time for the Fed to lift interest rates.

    The regional currency markets, including the peso-dollar exchange system, showed immediate reaction, which drove the local rate down to P45.74 last Wednesday from P45.61 the previous day. The Philippine unit had lost much of its value since P43.42 at the end of July 2014.

    Despite this, the BSP governor said the central bank believes the country’s strong macroeconomic fundamentals will continue to provide sufficient cushion to the peso.

    “The country’s positive economic outlook, investment grade status and sustained structural foreign exchange inflows would moderate any weakening pressures on the exchange rate,” he said.

    Providing buffer against such external risks would be the country’s gross international reserves (GIR), which stood at $80.4 billion in July with enough cover for 10.6 months of imports, official figures have shown.

    The BSP governor explained further that the country’s external sector dynamics remain favorable as reflected by the balance of payments (BOP), the steady overseas Filipino workers (OFW) remittances and ample dollar reserves.

    In June, the Philippines’ BOP reverted to a $485 million surplus, from a $58 million deficit recorded in May, and from a $24 million gap seen a year earlier.

    Sustained demand for skilled Filipino workers abroad and efforts by remittance service providers to expand their international and domestic networks have brought total remittances for the first five months of 2015 to $10.97 billion, up 5.2 percent from $10.43 billion recorded in the same period last year, government figures show.

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    2 Comments

    1. Strong fundamentals to cushion peso vs dollar

      You mean like the entire infrastructure of the Philippines being destroyed the past 5 years while the government and big business enrich themselves ?

      Don’t see that as helping much.