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

Cooperating on energy in face of tariffs

At Houston oil and gas industry forum, US, China executives discuss future. The US energy industry expects a strong long-term energy relationship with China, a US energy official told US and Chinese oil and gas executives the day after China announced a retaliatory 10 per cent tariff on US natural gas. Steve Winberg, US Energy Department assistant secretary for fossil energy, on Wednesday assured the energy executives that the US has never revoked a liquefied natural gas (LNG) export authorization, nor plans to do so. “Some potential exporters and financiers have expressed concern that the US may rescind or revoke LNG export authorization. Let me be very clear that these concerns are unfounded,” Winberg said on Wednesday at the opening of the two-day 18th US-China Oil and Gas Industry Forum in Houston. The forum has been a collaboration of the US Energy Department, Ch


By Cod Satrusayang
September 25, 2018

Economics, Opinion

Swift assistance needed to rehabilitate Hokkaido’s quake-stricken industries

To realize Hokkaido’s post-quake rehabilitation, it is indispensable to rebuild its industries. A half month has passed since the Hokkaido earthquake, which registered the highest level on the Japanese seismic intensity scale of 7. A power blackout that spread to all parts of the prefecture has been resolved. The No. 1 unit at the Tomato-Atsuma thermal power plant — a facility that plays a central role in the supply of electricity there — has been brought back on line. The government has withdrawn its request for power-saving, and neon lighting has returned to flourishing areas in Sapporo. However, scars from the earthquake have not yet healed. Even if the amount of direct damage, including that caused to roads, rivers and forest land, is calculated alone, the figure exceeds ¥150 billion. There are still many disaster victims in evacuation centers. T


By The Japan News
September 25, 2018

Economics, Opinion

Disruption seen from auto parts duty in US-China trade war

US tariffs on Chinese auto parts will probably result in higher prices and could disrupt the global automotive supply chain industry. The Trump administration has imposed a new 10 percent tariff on $200 billion worth of Chinese goods that takes effect on Sept 24. Beginning on Jan 1, the tariffs will increase to 25 percent. China retaliated with $60 billion of new tariffs on US products. The new levies target more than 100 automotive products including engines, gaskets, rubber seals, tires and transmission shafts. Tariffs are basically taxes on the consumer, and all costs increases within the supply chain will eventually be passed along to the consumer, according to Peter Nagle, senior automotive analyst at IHS Markit. “In the short-term, suppliers might absorb some of the cost of the tariff but eventually they will have to raise prices or resource product from elsewhere, which also will rai


By China Daily
September 24, 2018

Economics, Opinion

India launches world’s biggest healthcare programme

Prime Minister Narendra Modi launched India’s ambitious healthcare program on Sunday. Deemed the “world’s largest government-funded healthcare programme”, the scheme will cover half a billion people through its network of hospitals and support services. Speaking at the event, the PM said that the number of beneficiaries is equivalent to the total population of the United States, Canada and Mexico or the entire European Union. “This is a major step taken to fulfil the vision of providing better healthcare facilities to the poorest of the poor and to those standing last in the queue,” the PM said. Following the launch, the PM informed the gathering that the scheme covers diseases such as cancer, heart diseases, kidney and liver problems, diabetes and over 1300 various ailments. “The treatment of the diseases can not only be done in government hospitals but also private hospitals,” said


By Cod Satrusayang
September 24, 2018

Economics, Opinion

Opinion: One Belt, One Road: We must secure our interest

Shah Husain Imam argues in the Daily Star that Bangladesh must put its interests first in joining China’s One Belt, One Road initiative. The ancient Silk Road, of which the Belt and Road Initiative is a gigantic new avatar, dates back to the Chinese Han Dynasty’s westward expansion more than 2100 years ago. The Road derived its name from the lucrative silk trade along the routes through which it branched into what are today the central Asian countries Kyrgyzstan, Tajikistan, Kazakhstan, Uzbekistan, Turkmenistan, Afghanistan, as well as present-day Pakistan and India to the south. These routes eventually spanned 4,000 miles to Europe. Interestingly, silk was regarded as more precious than gold as a commodity in those times as if to convey the misty romanticism with the old world charm about a fine fabric. At any rate, the Silk Road by no means offered silken smooth passage to travellers like Marco P


By Daily Star
September 21, 2018

Economics, Opinion

US exempts Korean steel from import tariff

The move is seen as a positive signal for the local steel industry. Steel products made by South Korea’s SL Tech has been excluded from the US’ steel tariffs, marking the first case of exemption since the US imposed a quota on Korean steel shipments this May, industry sources said Thursday. The US Commerce Department earlier this week accepted US medical device manufacturer Micro Stamping’s request for a tariff exemption on ultrafine steel tubes imported from Korean steel company SL Tech. Micro Stamping uses ultrafine steel tubes made by SL Tech to produce medical equipment. Korean steelmakers viewed the decision as a positive sign of a higher possibility of tariff exemptions, while remaining cautious over whether the same decision would be applied to steel products used for construction and household appliances.


By The Korea Herald
September 21, 2018