The Peso downgrade
The tension between the dollar and peso is growing. (Photo from PhilStar)
It’s the Philippine Peso’s turn to be down this time as it reaches its worst value in nearly 17 years. A dollar now costs P54.47 in value. The good news is, it’s better compared to when it closed at P54.74 back on November 21, 2005. Yay, I guess?
The recent collapse was due to increasing demands for imports according to China Banking Corp. Chief Economist Domini S. Velasquez. The Bangko Sentral ng Pilipinas (BSP) have also tipped the scales towards the value change as it is warning everyone of a high possibility that interest rates would increase by 25 basis points (bps).
But that’s not the end of it. Felipe M. Medalla, current Monetary Board member and incoming BSP governor claims that “The BSP will keep on adjusting the policy rates until we’re comfortable that the change of inflation from one month to the next will be consistent with the target of 2-4%,”. Remember that inflation last May hit the 5.4% mark, the highest it has ever been in nearly four years, far exceeding the initial prediction of 2-4%.
Some economists even expect the BSP to increase it further towards 50 bps sometime in the future—all these are a direct result of the US Federal Reserve raising interest rates in an attempt to handle the extremely alarming inflation levels the world over.
“This gradual pace of BSP’s monetary tightening will contribute to the general weakness of the peso as investors will opt to move to higher yielding assets.” Velasquez says.
Supply chain disruptions, consumer goods being more expensive, and rising fuel costs are all just par for the course at this point. It might be time to prepare for an eventuality that a liter of gas would cost P120 or grocery bills to double compared to the previous years despite purchasing the same amount of items.
Higher ≠ better
While it’s easy to say that the recent weakening of the peso would mean more equivalent remittances for households who rely on the income of OFWs, when you take into consideration all the price increases (that are nearly at a four-year high by the way), it’s barely a difference if any at all.
It’s a simple concept. A higher peso exchange rate would mean more bang for the buck when turning in the dollars earned. A few Filipino households have spoken up about how that idea was soon shut down when they realized the price tags they have to deal with.
Looking at the bigger picture, RCBC chief economist Michael Ricafort explains that a weaker peso exchange rate coupled with higher global and local interest rates would mean higher debt servicing and overall debt for the Philippines.
However, economist Solita Monsod offers a silver lining as she explains that whenever the peso goes down, competitiveness in exports would increase. And theoretically, more Filipinos will be purchasing local goods rather than the more expensive imported ones.
But then again, everything’s getting more expensive anyways. It all just comes circling back together. Getting more pesos for every dollar doesn’t mean much if the prices for everything else goes up as well.
