See More on Facebook

Economics, Opinion

Falling peso, rising economy?

The depreciation of the Peso is not necessarily a cause for concern.


Written by

Updated: June 22, 2018


Is the falling value of the peso a sign of bad management of the economy? Does it signal a worsening economy ahead, and worse conditions for our people, especially the poor?

In the past, the peso-dollar exchange rate would jump when larger-than-usual dollar outflows would result from lumpy foreign payments, as when our oil companies imports. A more steady rise in the exchange rate would be traced to sustained dollar outflows, as when capital exited the country because of push (domestic political trouble) or pull (better yields elsewhere) forces.

So when I started writing my last piece on the history of the falling peso, I sent a message to Bangko Sentral ng Pilipinas Deputy Governor Diwa Guinigundo, a London School of Economics-trained economist, asking which of the above might be behind the latest trends. Given his busy schedule, I would have been happy with a one-liner reply, but even while on an overseas trip, he obliged me with a copious response, which I paraphrase below.

It need not unduly alarm us that the peso is depreciating, he wrote. The latest currency movement simply reflects the fundamentals of our growing economy. The stronger outflow of foreign exchange at this time actually reflects three positive trends.

First, imports continue to surge, feeding the input requirements of our fast-growing economy, including the massive “Build, Build, Build” infrastructure push of the government. Second, Filipinos’ investments abroad are on the rise. Companies like Jollibee and Manila Water, for example, continue to expand their reach overseas, cashing in on moneymaking opportunities in the growing global economy. Third, much of the country’s foreign loans are deliberately being prepaid to avoid rising interest rates.

All these are now exerting additional demand and pressure on the local currency. We should be more scared, he pointed out, when these fundamental forces are not reflected in the movements of the peso (such as if the BSP intervenes too heavily in the market by buying or selling large amounts of dollar reserves). If the exchange rate is artificially insulated from such natural market forces, we run the risk of building up too much pressure to the point of getting large, discrete and destabilizing movements on the rate.

Reading reports of the BSP’s falling (but still very high) levels of foreign reserves, I could tell that it is selling dollars to smoothen currency movements, but not preventing it from following the natural direction dictated by the forces just cited. The bad news, as I’ve written before, is that we’ve been unable to grow our exports like our neighbors are doing; this could otherwise help arrest a longer-term depreciation trend.

Deputy Governor Guinigundo also pointed out that, in assessing the peso situation, the time frame of analysis matters. If we look at recent weekly movements, the peso indeed appears to have bucked the trend of most currencies in the region. But a five-year comparison shows us to be in step with the overall depreciation of regional currencies.

An even more meaningful assessment would consider the real effective exchange rate, tracking the peso’s movement relative to a basket of currencies of our most important trading partners, adjusted for inflation differentials. Based on this measure, he pointed out, the peso has been broadly stable because its nominal depreciation has been coupled with lower inflation in the last few years, thus keeping our exports competitive.

Finally, Mr. Guinigundo said that the pass-through effect of the exchange rate to inflation is now weaker, based on BSP tracking since it shifted to inflation targeting (vs. exchange rate targeting in the 1990s) in 2002. This means that the economy has become more efficient and competitive, thereby moderating the exchange rate movements’ impact on domestic price levels. Thus, while the falling peso helps exporters and their workers, along with families dependent on remittances from abroad, it would not hurt the rest of us as much as it would have before, via higher inflation.

Fear not, then: The falling peso doesn’t mean the economy is falling, too.



Enjoyed this story? Share it.


Philippine Daily Inquirer
About the Author: The Philippine Daily Inquirer is one the country’s most credible and influential newspapers with over 500 awards and citations.

Eastern Briefings

All you need to know about Asia


Our Eastern Briefings Newsletter presents curated stories from 22 Asian newspapers from South, Southeast and Northeast Asia.

Sign up and stay updated with the latest news.



By providing us with your email address, you agree to our Privacy Policy and Terms of Service.

View Today's Newsletter Here

Economics, Opinion

Vietnam to be among world’s most dynamic markets by 2030

The country has reached amazing levels of progress in the last two decades. With an emerging market economy and continued strong growth, Vietnam is set to become one of the most dynamic markets in the world by 2030, according to Euromonitor International, a global market research company. An Hodgson, Euromonitor International’s income and expenditure research manager, said the company’s research database showed that urbanisation, with the associated concentration of income, wealth and population, would propel Việt Nam’s commercial success by 2030. Published last month, the research database has found that Vietnam will be the third biggest urban market by consumer numbers and fifth biggest by total spending in Southeast Asia. By 2030, the country’s urban consumer market will expand to 46 million consumers and $169 billion worth of spending. GDP growth is expected to rea


By Viet Nam News
June 13, 2019

Economics, Opinion

Li pledges to improve business climate

Li Keqiang says China taking steps to open up economy to foreign businesses Premier Li Keqiang reaffirmed China’s commitment to improving its business environment by deepening reforms to streamline administration and carrying out large-scale tax cuts and fee reductions. Li said in a meeting on Tuesday with World Bank President David Malpass that the country will bring its business environment more in line with market principles, international standards and the rule of law as part of efforts to promote high-quality development. He noted China’s cooperation with the World Bank, which is in keeping with its steps in reform and opening-up and benefited the country’s growth. The global landscape is complex and fluid, and the Chinese economy is facing various risks and challenges, he said. Further cooperation between China and the World Bank will help promote poverty reduction, narrow


By China Daily
June 12, 2019

Economics, Opinion

Restrictions on Chinese firms could drive up 5G cost

China is increasing pressure on consumers in a bid to end restriction on its major tech firms. Europe would have to pay an extra 55 billion euros ($62 billion) for 5G networks and suffer an 18-month technology delay if it bans telecom equipment purchases from top Chinese manufacturers, according to an industrial report. The report by the GSM Association, which represents 750 mobile operators worldwide, said Ericsson, Nokia and Samsung, the non-Chinese contenders in the 5G market, do not have the capacity to handle all of the shift from 3G and 4G networks to 5G in Europe while honoring contracts already signed in North America and Asia. Huawei and ZTE account for about 40 percent of the EU market, and Huawei is “currently a pioneer in 5G technology”, according to the GSM analysis, first reported by Reuters and Agence France-Presse on Friday. “A ban on Chinese v


By China Daily
June 11, 2019

Economics, Opinion

Malaysia finds mass influx of undocumented workers from Bangladesh

5,272 undocumented Bangladeshis held in Malaysia in 5 months. Malaysian immigration department has detained 5,272 Bangladeshi workers among other nationals between January 1 to June 4 this year amid the country’s stringent actions against undocumented foreign workers. During this time, the immigration department carried out 7,940 operations nationwide, involving checks on over 100,000 foreigners and took actions against 23,295 undocumented foreign workers, reports Malaysian newspaper Free Malaysia Today, quoting a statement by Malaysian Home Minister Muhyiddin Yassin on Sunday. Of those detained, 8,011 are Indonesians, 5,272 are Bangladeshis, and the rest include workers from Myanmar, Philippines and Thailand, the report read. “In the five months between January 1 and June 1, 2019, some 26,116 illegal immigrants were sent back to their respective countries,” the statement said. The n


By The Star
June 11, 2019

Economics, Opinion

Pakistan’s healthcare system is not ready for coming epidemics

Naseem Salahuddin, an infectious disease specialist, looks at the bigger picture in Pakistan. THE Larkana HIV outbreak has opened up a can of worms throughout the length and breadth of Pakistan, exposing our feeble healthcare system — of which infectious diseases (IDs) comes into sharp focus. I do not recommend the following exposé be read by the faint-hearted, nor by those in positions of decision-making who have only observed health inequities from the comfort of their offices. It might hurt their sensibilities. A snapshot of a day in the ID department of the Indus Hospital, Karachi, will give the reader stomach-churning insights into the lives of the poor and sick. In the TB clinic, over 200 patients are waiting to be diagnosed or receive their free medicines, a third of whom have drug-resistant TB. One is a woman with both lungs destroyed by the most drug-resistant form of TB, pregnant for the n


By Dawn
June 11, 2019

Economics, Opinion

Pakistan not hitting economic growth targets.

Agricultural, industrial growth registers sharp slowdown in Pakistan. The economy grew at an average rate of 3.29 per cent (provisional) in fiscal year 2018-19 against an ambitious target of 6.2pc set in last year’s budget, the Pakistan Economic Survey revealed on Monday. Sector-wise growth rates: Agriculture: 0.85 per cent (against target of 3.8pc) Industry: 1.4pc (against target of 7.6pc) Services 4.7pc (against target of 6.5pc) Revenue collection Total revenue at Rs3,583.7bn (9.3pc of GDP) showed almost 0pc growth from July-March 2019, while growth in total expenditures was 8.7pc. The fiscal deficit was recorded at 5pc of the GDP compared to 4.3pc in the corresponding period last fiscal. “Decelerated


By Dawn
June 11, 2019