Peso still among strongest currencies in the region

MANILA, Philippines—The peso remained one of the biggest gainers among Asian currencies against the US dollar in August, as sustained inflows of foreign portfolio investments and remittances propped up the local currency’s value.

According to the Bangko Sentral ng Pilipinas, the peso appreciated by 4.23 against the greenback from the start of the year to the end of August.

This was one of the strongest rates of appreciation among key Asian currencies, the BSP said, and was the fastest rise among the “Asean 5” currencies, which also include the Singaporean dollar, the Malaysian ringgit, the Thai baht and the Indonesian rupiah.

The peso’s rate of appreciation as of August, however, was slower than the 5.1 percent registered as of July. The peso closed at 42.06 against the US dollar on August 31, weaker compared with the 41.72 finish at the end of July.

It may be recalled that foreign portfolio investments surged in July, when the country was given an upgrade for its credit rating by Standard & Poor’s from two to just one notch below investment grade.

Remittances are also credited for keeping the peso strong. Officials said money from abroad is still growing because of continued deployments amid strong global demand for Filipino workers.

Data from the BSP also showed that the peso’s volatility as of the end of August settled at 1.38 percent, which was in the middle of the ranges of volatility of key Asian currencies against the greenback.

Volatility indicates how erratic a currency’s value is against another, such as the US dollar, through deviations of its daily value from the average for a given period.

An appreciation of the peso has its benefits. It helps temper overall increase in consumer prices in the country because it makes the cost of imported goods, such as oil, cheaper in local currency terms.

However, rise of the peso makes Philippine-made goods costlier in dollar terms, thereby dampening competitiveness of the country’s export sector.

Citing both the benefits and drawback of a strong peso, the BSP said it does not have a bias in a favor of a strong or weak peso. Instead, the central bank said, it maintains a policy of allowing the exchange rate to be generally market determined, although it exercises flexibility to buy or sell currencies in the market from time to time just to temper potentially sharp and sudden volatility of the peso.

The peso’s rise so far this year has elicited complaints from some exporters, who said the 10-percent growth target for the country’s export earnings this year is unlikely to be achieved.

Exporters want the BSP to intervene in the foreign exchange market much more to deliberately weaken the peso against the US dollar.

The BSP, however, stressed that having an exchange rate bias would be imprudent.

BSP Deputy Governor Diwa Guinigundo earlier said Filipino exporters should not depend on the exchange rate for competitiveness. Instead, he said, exporters should strive for better profitability by further improving quality of products, by tapping more export markets, and by improving services such as shortening time of goods delivery.