Peso among top reg’l performers in 2020

MANILA, Philippines — The peso emerged anew as one of the best performing currencies in the region for the second straight year, gaining more than five percent despite the onslaught of the COVID-19 pandemic.

The peso gained 2.61 centavos this year, closing at its strongest level in more than four years at 48.023 to $1 yesterday from the end- 2019 level of 50.635 to $1. This was the strongest level for the peso since closing at 47.99 to $1 on Sept. 23, 2016.

On the last trading day for 2020, the peso gained 3.2 centavos from Monday’s 48.055 to $1. Volume increased to $731.25 million from $507.38 million last Monday.

Ruben Carlo Asuncion, chief economist at Union Bank of the Philippines, attributed the strengthening of the peso to the collapse of imports due to the impact of the pandemic on global trade.

“Commercial and production demand for the dollar due to timid consumption demand brought by the COVID-19 pandemic has also consistently affected the peso’s strength this year,” Asuncion said.

Latest data from the Philippine Statistics Authority (PSA) showed the country’s trade deficit was cut by almost half to $17.92 billion as of end-November this year from $34.05 billion in the same period last year.

Imports dropped by 25.2 percent to $70.04 billion during the 11-month period compared to last year’s $94.6 billion, while exports booked a double-digit declined of 12.5 percent to $52.1 billion from $59.5 billion.

“Another factor is the better-than-expected remittance inflows, that we initially expected to decline by almost double digits and is now expected to just decline between one and two percent,” Asuncion said.

Data from the Bangko Sentral ng Pilipinas (BSP) showed cash remittances coursed through banks by overseas Filipino workers (OFW) slipped by 0.9 percent to $24.63 billion from January to October compared to last year’s $24.86 billion, while personal remittances contracted by one percent to $27.35 billion from $27.61 billion.

“Lastly, the dollar’s general weakness, due to various domestic reasons, has also contributed to the peso’s strength in general,” Asuncion said noting neighboring currencies in the region also strengthened because of the weakness of the greenback.

For his part, Security Bank chief economist Robert Dan Roces said the peso may weaken back to the 50 to $1 by the end of next year on improved global trade translating to a wider trade deficit.

Roces also cited the expansionary policy of US president-elect Joe Biden who defeated Donald Trump in the election last November.

“Improved global trade means a wider trade deficit and more   dollar demand locally, while as expansionary policy in the US means a support for a stronger currency. These dynamics point to a depreciation direction for the local currency,” Roces said.

BSP Governor Benjamin Diokno earlier attributed the strength of the peso to the country’s sound macroeconomic fundamentals characterized by a benign inflation environment, a strong and resilient banking system, prudent fiscal position and a sufficient level of international reserve buffer.

“The peso should continue to reflect emerging demand and supply conditions in the foreign exchange market as well as the continued soundness in the country’s macroeconomic fundamentals over the near term,” Diokno said.

The local currency has also performed better compared to other Southeast Asian currencies and appreciated vis-à-vis the dollar along with the Taiwanese dollar, Chinese yuan, South Korean won, and the Japanese yen.

Analysts are expecting the peso to remain strong in the near term and maintain its resiliency as one of Asia’s top-performing currencies.

The BSP remains committed to a flexible exchange rate system. At the same time, it relies on a set of measures to cushion the impact of sharp peso movements such as maintaining a healthy level of foreign exchange reserves as a buffer, reviewing and calibrating existing macro-prudential measures.