Gov’t shrugs off concerns over peso’s depreciation

The country’s chief economist on Thursday sought to allay fears over the peso’s freefall, saying that the currency’s depreciation and its impact on inflation would remain manageable throughout the year.

Socioeconomic Planning Secretary Arsenio Balisacan said the current pace of the peso’s depreciation should not be a cause for worry, stressing that it would actually benefit the economy on a net basis.

What is worrisome, Balisacan said, “is the sharp fall of the peso, which we do not expect to happen.”

Balisacan, who is also director general of the National Economic and Development Authority (Neda), said in a press conference that the weakening of the peso was a welcome development because it would help boost the competitiveness of domestic industries.

The peso, which closed in the 44-to-a-dollar territory by the end of 2013, now hovers in the 45-to-a-dollar level.

Because a weaker peso makes imported goods more expensive in local currency terms, demand for domestically produced goods rises.

But Balisacan also said a sharp weakening of the peso should be avoided given its adverse impact on domestic prices.

A weak peso makes imported goods, such as oil, more expensive, thereby boosting overall inflation in the country.

He did not say what exchange rate should be considered worrisome, but he explaine that depreciation to the 45- or 46-to-a-dollar level should not be cause for alarm.

The government hopes to cap inflation to an average of 3-5 percent this year.

Balisacan said inflation would not likely breach the target.

He said agriculture production would remain favorable and investments in manufacturing and services would continue to rise. As a result, he explained, supply of goods and services would likely grow sufficiently to meet rising demand, and inflation should remain within target.

The Bangko Sentral ng Pilipinas from time to time intervenes in the foreign exchange market by buying and selling of currencies. Balisacan said the regulator would prevent the unmanageable movement of the peso.

“We don’t expect a sharp deprecation of the peso, and we don’t expect [inflation] to accelerate to unmanageable levels,” Balisacan stressed.

The weakening of the peso, which mirrors movement of other emerging market currencies, has been attributed to the US Federal Reserve’s decision to temper its stimulus program.