The depreciation of Asian currencies including the peso against the US dollar was due to the “overreaction” of fund managers across the region, the Finance Department said over the weekend.
Finance Undersecretary Gil Beltran said in his latest economic bulletin last week’s overall weakness of Asian currencies was an overreaction by fund managers to the prospects of higher US Federal Reserve rates this December.
Beltran, who serves as the agency’s chief economist, said several emerging economies with excess savings such as the Philippines were not dependent on the regime of cheap financing perpetuated by the US.
He said cheap financing resulted from the post-2008 financial crisis move by the Fed to cut rates as a monetary stimulus to ignite the US economic recovery.
“Economies like the Philippines are net lenders, rather than borrowers. There is, however, an overreaction by fund managers and have lumped all economies into one category without regards to macroeconomic fundamentals,” said Beltran.
He said with the impending normalization to be undertaken by the Federal Reserve, “the days of cheap financing and large capital inflows are coming to an end.”
“With the US economy recovering, the Fed would soon end its monetary stimulus program, which it resorted to in 2008 to aid the American economy at the height of the then-global financial crisis,” Beltran said.
“Low interest rates were a boon to developing countries with lower borrowing costs and significant inflows of capital,” he said.
Reports said US policymakers were inclined to raise interest rates very soon.
Finance Secretary Carlos Dominguez III said the peso’s breaching of the 50-a-dollar level was an expected reaction of the local currency to the anticipated early rate increase by the Fed, with other Asian currencies also moving in the same direction.
“We are watching the currency movements very closely. We seem to be moving in the same direction as the other currencies. We just want to avoid abrupt changes in the exchange rates,” Dominguez said.
Dominguez said the country’s rock solid macroeconomic fundamentals would enable the domestic economy to survive external shocks such as higher US interest rates and a stronger dollar.
Foreign economists said countries such as the Philippines and Thailand were expected to perform better as US interest rates rise and the dollar strengthens because they have significantly increased their foreign exchange reserves over the years, creating buffers to help them sail through the currency volatility and ensuing capital outflows.