Philippine peso region’s worst performing currency, more downside seen
The Philippine peso on August 14 sailed through the 51:1 barrier against the US dollar, a value not seen since August 2006, bringing about an 11-year low for the currency of Southeast Asia’s otherwise currently fastest growing economy. A low of 51.24 to the US dollar was reached in the first 12 hours of trading on that day.
The devaluation happened even on top of the US dollar’s weakening against major world currencies in the wake of traders’ concerns over US President Donald Trump’s erratic policies. The peso lost almost nine per cent in value to the US dollar over the last 12 months even though the US dollar itself is now on a 13-month low to against a basket of major global currencies.
Of course, the devaluation is a double-edged sword. While imports are getting more expensive which negatively effects both the Philippines’ trade and current account balance, the remittances sent from overseas workers have more purchasing power at home, not just those in US dollar or dollar-pegged currencies, but also other major world currencies since the peso also lost drastically against the euro and substantially against yen, yuan, Australian and Singapore dollar and most other important world currencies such as the British pound or the South Korean won.
While a higher purchasing power might be a welcomed effect for OFW families, analysts says that the risk of a further devaluation of what was Southeast Asia’s worst performing currency this year so far would almost certainly lead to build-up of economic imbalances which would by far overshadow the positive effect of higher-valued remittances. In fact, the Philippines is now heading towards its first current account deficit in 15 years.
Banking analysts identify the risks in rising credit intensity, high exposure to real estate and rising property prices, as well as a deterioration in the country’s external position.
“We note that the annual increase in the credit-to-GDP ratio in the Philippines has frequently hit three percentage points, a level that calls for vigilance, according to the International Monetary Fund’s assessment of financial stability,” an analysis of ANZ Banking Group said.
A lot of that credit is finding its way into the property sector, which has been reflected in property prices. ANZ is concerned that a leveraged cycle of property is now underway. The growth in credit is also driving domestic demand which has fueled more imports amid the need for more capital goods to build more infrastructure, including a flurry of residential projects, amid strong demand and investment.
ANZ expects the weak performance of the peso to continue at least until year-end in the absence of a central bank intervention or other policy responses.
However, the Philippine central bank calmed down concerns over the effects of a weak peso, saying that the currency isn’t expected to enter free-fall mode given the nation’s strong economic fundamentals.
“The peso [exchange rate] is market-determined. It’s natural for it to show volatility as it adjusts to market conditions and all the short-term uncertainties such as increased tension in North Korea,” Bangko Sentral ng Pilipinas governor Nestor Espenilla said.
“We don’t expect it to do a free fall because our economic fundamentals now, unlike before, are solid and very strong,” he added.
The Philippine peso on August 14 sailed through the 51:1 barrier against the US dollar, a value not seen since August 2006, bringing about an 11-year low for the currency of Southeast Asia's otherwise currently fastest growing economy. A low of 51.24 to the US dollar was reached in the first 12 hours of trading on that day. The devaluation happened even on top of the US dollar's weakening against major world currencies in the wake of traders’ concerns over US President Donald Trump's erratic policies. The peso lost almost nine per cent in value to the US dollar over...
The Philippine peso on August 14 sailed through the 51:1 barrier against the US dollar, a value not seen since August 2006, bringing about an 11-year low for the currency of Southeast Asia’s otherwise currently fastest growing economy. A low of 51.24 to the US dollar was reached in the first 12 hours of trading on that day.
The devaluation happened even on top of the US dollar’s weakening against major world currencies in the wake of traders’ concerns over US President Donald Trump’s erratic policies. The peso lost almost nine per cent in value to the US dollar over the last 12 months even though the US dollar itself is now on a 13-month low to against a basket of major global currencies.
Of course, the devaluation is a double-edged sword. While imports are getting more expensive which negatively effects both the Philippines’ trade and current account balance, the remittances sent from overseas workers have more purchasing power at home, not just those in US dollar or dollar-pegged currencies, but also other major world currencies since the peso also lost drastically against the euro and substantially against yen, yuan, Australian and Singapore dollar and most other important world currencies such as the British pound or the South Korean won.
While a higher purchasing power might be a welcomed effect for OFW families, analysts says that the risk of a further devaluation of what was Southeast Asia’s worst performing currency this year so far would almost certainly lead to build-up of economic imbalances which would by far overshadow the positive effect of higher-valued remittances. In fact, the Philippines is now heading towards its first current account deficit in 15 years.
Banking analysts identify the risks in rising credit intensity, high exposure to real estate and rising property prices, as well as a deterioration in the country’s external position.
“We note that the annual increase in the credit-to-GDP ratio in the Philippines has frequently hit three percentage points, a level that calls for vigilance, according to the International Monetary Fund’s assessment of financial stability,” an analysis of ANZ Banking Group said.
A lot of that credit is finding its way into the property sector, which has been reflected in property prices. ANZ is concerned that a leveraged cycle of property is now underway. The growth in credit is also driving domestic demand which has fueled more imports amid the need for more capital goods to build more infrastructure, including a flurry of residential projects, amid strong demand and investment.
ANZ expects the weak performance of the peso to continue at least until year-end in the absence of a central bank intervention or other policy responses.
However, the Philippine central bank calmed down concerns over the effects of a weak peso, saying that the currency isn’t expected to enter free-fall mode given the nation’s strong economic fundamentals.
“The peso [exchange rate] is market-determined. It’s natural for it to show volatility as it adjusts to market conditions and all the short-term uncertainties such as increased tension in North Korea,” Bangko Sentral ng Pilipinas governor Nestor Espenilla said.
“We don’t expect it to do a free fall because our economic fundamentals now, unlike before, are solid and very strong,” he added.
