Analysts: Huge rice imports won’t burden weak peso

There’s a minimal risk that the projected increase in inbound shipments of rice as a result of lower tariffs on the commodity would bloat the country’s total import bill and add pressure on the already volatile peso, analysts said.

This, while the Bangko Sentral ng Pilipinas (BSP) assured the public that it has enough reserves to defend the currency from “temporary” weakness.

Robert Dan Roces, chief economist at Security Bank, said the government was expected to ensure that the higher arrivals of imported rice would not trigger major dollar outflows and weigh on the peso, which has been trading at 19-month lows in recent weeks.

“The increase in imports will technically put pressure on the Philippine peso by raising the import bill, boosting demand for foreign currency, and potentially widening the trade deficit,” Roces said.

“While factors such as global rice prices, domestic production and the overall health of the economy may mitigate some of the impact, the national government is expected to minimize the risk of the increased rice imports adversely affecting the peso and the broader economy,” he added.

Top importer

The government earlier announced its decision to further slash tariffs on imported rice to 15 percent from 35 percent until 2028, a measure that state statisticians said could cut the domestic prices of the staple grain by P6 to P7 per kilogram.

For that reason, the US Department of Agriculture’s Foreign Agricultural Service estimated the Philippines’ rice imports would reach 4.6 million metric tons (MT) in 2024, up by around 27 percent from the 3.6 million MT that arrived in 2023 and cementing the country’s spot as the world’s top rice importer.

The projected hike in rice imports could boost local demand for dollars, which would pressure an already bearish peso.

At a press conference last Friday, BSP Senior Assistant Governor Iluminada Sicat said the country has enough dollar reserves to soothe any volatility in the foreign exchange (FX) market.

Latest forecasts by the BSP showed the country was expected to end 2024 with a dollar surplus of $1.6 billion, higher than the previous projection of a $700-million windfall.

“So meaning to say we are anticipating more supply of FX in 2024 than what is being demanded,” Sicat said.

Aris Dacanay and Lenny Jin, analysts at HSBC Global Research, said the risk to the Philippines’ import bill was “minimal, which in turn, leads to minimal impact on the peso.”

“Rice only accounts for 1.2 percent of the country’s imports so the increase in the import bill shouldn’t be much,” Dacanay and Jin said.

“Nevertheless, we need to look at the policy holistically as well. The tariff rate cut can also lead to a significant reduction in inflation and free up 2 percent of household budgets to be spent elsewhere—thus, bolstering growth,” they added.

Miguel Chanco, economist at Pantheon Macroeconomics, shared the same view.

“Looking ahead, there will be quite significant downward forces on the total import bill, in particular the ongoing correction in global oil prices and the broad slowdown in Philippine domestic demand,” Chanco added. INQ