FMIC, UAAP: Peso fall no cause for alarm

Filipinos need not worry too much about the peso’s weakening against the dollar as its net impact on the economy has been positive given the higher purchasing power of households receiving remittances from overseas Filipinos and the country’s improved trade position.

This was according to a joint statement issued yesterday by investment house First Metro Investments Corp. and the University of Asia & the Pacific.

“If we take a longer view, the peso has actually appreciated by 4.6 percent from 2004 to June 13, 2018, while our neighbors Indonesia and Vietnam had large cumulative depreciation in excess of 40 percent in the same period. Malaysia also shows net depreciation during the period,” FMIC and UA&P said in a note issued yesterday.

The depreciation of the peso is seen to discourage imports and produce more exports, thus, reducing the trade deficit over the medium term. And because of the increase in production locally, it will boost employment generation, the research note said.

The weakening of the peso could boost the income of the families of overseas Filipino workers (OFW), exporters and those that supply raw materials to exporters.

With about 10 million OFWs and with an average family size of 4.6, the peso slide benefits some 46 million Filipinos, it said.

“Add to that the number of families dependent on exports, which account for 30 percent of GDP (gross domestic product), plus those that supply raw materials to exporters, we can easily conclude that a vast majority of Filipino families benefit from the higher peso-dollar exchange rate,” FMIC and UA&P said.

The research also cited an estimate from the Bangko Sentral ng Pilipinas that a 10-percent peso depreciation would add only about 0.5 percent to inflation. This means that if the foreign exchange rate averages 6 percent higher, the resulting additional inflation would only be 0.3 percent, it said.

“While the current weakness of the peso might seem negative, its impact in both the short and medium term is net positive,” the research said.

The peso closed yesterday at 53.47 to a dollar, still far from the all-time low of 56.34 posted in 2004.