Surging imports bring peso back to P50-per-dollar level
MANILA, Philippines — Surging demand for dollars amid a spike in imports sank the Philippine peso to its lowest level in more than a year on Friday, with the local unit now back to the P50-level against the greenback.
The local currency shed 0.4% from the previous day to cap the week at P50.08 versus the US dollar. Data showed it was the peso’s weakest performance since it closed at P50.19 per dollar on June 23, 2020.
The peso opened the final trading day of the week at P50.1 before falling to an intra-day low of P50.17 against the greenback. Dollars traded went down to $859.7 million from $1.12 billion the previous day.
Since the beginning of the year, the local unit has depreciated by 4.2%.
In an e-mailed commentary, Nicholas Mapa, senior economist at ING Bank in Manila, said a widening trade gap as a result of surging imports is to blame for the peso’s weakness. As pandemic curbs further ease, importers are exchanging more pesos for dollars to ship in more goods to meet a slow pick-up in consumer demand, thereby weighing on the local currency.
A rallying dollar is adding pressure to the peso, Mapa also said, but he believes the current weakness of the peso is unlikely to prompt the Bangko Sentral ng Pilipinas to pull the trigger and fire a rate hike.
A weak currency may raise the costs of imports, like fuel, and fan inflation, and it’s something that could threaten the BSP’s ultra-loose monetary policy settings. A falling currency may also bloat the value of the government’s foreign debts at a time it is depending on borrowings to fund a costly pandemic response.
But a sliding peso would benefit migrant Filipinos as it increases the value of their remittances, thereby providing their families here with more income amid hard times.
“BSP Governor Diokno appears unfazed by the recent PHP drop however, indicating that the currency continues to be driven by supply and demand conditions. This suggests that BSP will likely refrain from costly policy rate hikes to help stem the depreciation trend,” Mapa said.
“However, we could see BSP changing its tune should the current weakness go on for a considerable period of time. In the near term, we expect BSP to stick to its accommodative stance given that the economic recovery is still in its nascent stages as import levels, although rising, are still below pre-Covid levels,” he added.
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