Peso depreciation: ‘Preparing for the worst’

MANILA, Philippines—As many weigh in on the benefits and risks of the peso’s depreciation, an economist suggested that the country should “prepare for the worst.”

In July, almost a month after the peso started depreciating swiftly after hitting 53:$1 on June 10, Finance Secretary Benjamin Diokno said the public should not feel concerned yet with the peso depreciation.

Aside from considering the benefits of the peso’s losses, Diokno explained that one way to assess the peso’s performance is by looking at how it compares with other currencies.

“You should not be concerned with the peso because the right way to look at the peso is if [it’s] competitive. How do you measure that? The technical term is real effective exchange rate,” the chief economic manager said.

“How does it compare with other currencies? We’re in the middle of the pack, so our currency is competitive,” he added.

In the same month, the peso closed at P55.67 against the US dollar. According to banking giant DBS, on a year-to-date basis, the peso has depreciated the most among currencies in the six largest economies of the Association of Southeast Asian Nations (Asean).

At a news conference with the country’s economic managers in New York during President Ferdinand Marcos Jr’s US visit, Bangko Sentral ng Pilipinas (BSP) Governor Felipe Medalla assured that the local currency is still stable.

“Relative to Korea (won), relative to the Japanese yen, to the (British) pound, the Philippine currency is middle of the pack. If one takes a global view of the currency, it is actually quite stable, especially given this very difficult pivot of the US Fed,” Medalla said.

Peso’s depreciation and inflation
Citing what he said was the “good” side of the current peso depreciation—benefits to exporters, OFWs, tourism industry, and some domestic producers—economics professor and former socioeconomic planning secretary Cielito Habito said the government must be cautious of a rise in the inflation rate.

“We should not necessarily look at what’s happening as entirely bad news because there is a lot of good news in it. But it is to be admitted that because the peso is depreciating so much, the inflation is already being affected as well,” Habito told INQUIRER.net.

“Yes, there are winners, but the general public is also getting affected by higher inflation,” he added.

Last August, Medalla noted that the peso’s depreciation against the US dollar is adding inflationary pressure.

Source: https://newsinfo.inquirer.net/1674200/peso-depreciation-preparing-for-the-worst