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10 Years Ups & Downs Of Philippines Peso

The first decade of the millennium marked a period of relative depreciation of the peso. It started in 2000, where the exchange rate was roughly 45 pesos-to-the-dollar, but since 2013 the peso depreciated. The loss of value of the peso was caused by political turbulence. In the middle period from 2013 – 2016, there was a period of relative stability of the exchange rate. The improvement of it was marked by reigning in government expansion. However, the impact of the economic growth in the country was not higher or developed. The reason was, lack of investments on infrastructure such as roads and railways, inadequate mobilization of fiscal resources. As a result, this causes to poor investment performance from local and foreign industries.

Source: tradingeconomics 

Philippine peso development year 2016 

In the beginning of 2016, Duterte became the president of the Philippines. There was apparent acceptance of the depreciation to pay the price for a more aggressive public spending program, such as expanding public investments in infrastructure. This was fueled further by the improvement of fiscal mobilization. As a result, the peso had fallen to 50 pesos-to-the-dollar by 2017. A 2016 article by Bloomberg headlined this as ‘Duterte’s Talked the Peso to Its Lowest Level in Seven Years’. The Duterte administration is maintaining its commitment to ramp up infrastructure spending. Building programs in order to develop and attract investors in the country will contribute a lot in economic recovery.

 

Strengthening peso 

The local currency has now strengthened by 4.6%. This means the balance-of-payments picture for the peso has become “a lot more positive,” said Eddie Cheung, an emerging-markets strategist at Credit Agricole in Hong Kong. Increasing foreign reserves, combined with the resilience of remittances from money abroad, are factors leading to optimism that the peso has the chance to grow. Bangko Sentral Pilipinas (BSP) said it expects the peso to sustain its strength on favorable investment sentiment and the gradual reopening of the country’s economy. This means the peso will continue to reflect the demand and supply in the foreign exchange market such as Chinese yuan, which is about 7 pesos-to-the-yuan.

 

Currency strength could fade

The peso has been at the helm of a rally in emerging-market currencies as they have bounced back from the coronavirus shock in March 2020. This was aided by record central-bank stimulus and a weakening dollar. Philippine’s economy has been badly hit by the strict lockdown to slow the spread of the coronavirus disease. It registered as one of Asia’s worst hit countries in the second quarter after shrinking by 16.5%. This means that the demand for foreign currency continued to fall. However, until the pandemic it was Southeast Asia’s best performing currency, and compared to other Asian currencies, had a positive year. A report from MSN states, ‘from January 1, 2020 to September, the Philippine peso jumped 4.3% against the US dollar. By comparison, the Chinese yuan rose by 1.8% — while the Indian rupee slid 2.9% and the Indonesian rupiah dropped 6.3%.’

The positive and the favorable investor sentiment over the country economy´s fundamentals is expected to provide support for the currency and they could see that the peso continue to appreciate through 2021. This is backed by Bloomberg, who state that the peso is set to have a positive 2021, after appreciating against the Dollar in late 2020 to find itself at a four year high. In an article by Bloomberg, Eugenia Victorino, head of Asia strategy at Skandinaviska Enskilda Banken AB in Singapore, stated “as long as domestic demand is far from a full recovery, we expect the peso to get even stronger,” 

 

 

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Sources

Philippines sources 
Philippines Financial Times
Trading Economics
Bloomberg
CNBC
Bullish Channel
Exhange Conversion