THE peso’s depreciation against the US dollar is positive overall for the Philippines, a neophyte lawmaker said on Saturday.
Surigao del Sur Rep. Johnny Pimentel, a member of the House economic affairs committee, said it was “foolish” to attribute the peso’s recent weakness to the supposed “political volatility” created by President Rodrigo Duterte’s outbursts against Western powers.
“A weak peso is good for our exporters who earn in dollars. It is also beneficial to our overseas workers and their families here. It is likewise helpful to our booming and highly labor-intensive outsourcing sector that generates income in dollars,” Pimentel said.
“As long as the peso’s decline is driven by market forces, and the drop is not too big and not too sudden, it is generally favorable to the country,” Pimentel said.
The peso is now hovering at seven-year lows, closing Friday at 48.23 to a greenback.
“It is foolish to attribute the peso’s recent weakness to the purported political volatility created by President Duterte’s outbursts against Western powers,” Pimentel said.
Pimentel said that two weeks before Duterte assumed office, the chief economist at the Bank of the Philippine Islands actually released a report projecting that the peso would likely hit 50 to a dollar before the end of 2016, the US Federal Reserve prepares to start raising interest rates.
The BPI report was widely published in local newspapers.
“Actually, the peso is not fundamentally weak. The dollar is simply gaining relative strength because there is growing expectation that after years of zero interest rates, the US Federal Reserve will soon start raising rates,” Pimentel said.
He said the US Federal Reserve is widely expected to start jacking up interest rates shortly after the Nov. 8 presidential elections in America, or before the end of the year.
“Owing to this anticipation, investors around the world, including Filipinos by the way, are starting to park some of their money in dollar-denominated assets, thus, the rising need for dollars. And as the demand for the dollar increases, its value also climbs against other currencies, including the peso,” Pimentel said.
Pimentel said the peso’s depreciation would provide multinational business process outsourcing firms operating in the Philippines additional incentive to expand their operations here and step up hiring of Filipino staff.
Like exporters, BPO firms in the country sell their services to overseas clients. They generate revenues in dollars, but spend for their operations here, including the wages of their employees, in pesos.
Philippine exporters of merchandise goods as well as BPO firms have gained progressively because of the peso’s steady decline against the dollar over the years.
Based on Philippine Dealing System figures, the peso averaged 42.44 to a dollar in 2013; 44.39 to a dollar in 2014; and 45.50 to a dollar in 2015. From January to September this year, the peso has so far averaged 46.95 to a dollar.
Pimentel played down the potential domestic inflationary impact of a weaker peso.
“Fortunately for us, crude oil and energy prices in general are still somewhat depressed, so even in our fuel suppliers have to spend a bit more pesos to buy every dollar they need to import petroleum products, the impact on local pump prices is negligible,” he said.