The government still has room to let the peso depreciate further so that it can stimulate job creation throughout the country, according to an economist of the University of Asia and Pacific (UA&P).
UA&P’s Victor Abola said that the effect of the resulting foreign exchange on inflation would be minimal.
He estimated that a change of 10 percent on the prevailing exchange rates, whether positive or negative, would result in a 0.3 percent change in inflation.
Inflation in September eased to 3.6 percent from 3.8 percent in the previous month, bringing the average inflation from January to September to 3.2 percent—near the low end of the government’s 3- to 5-percent target for 2012.
“I don’t expect inflation to be a very big problem this coming year and in the years to come,” Abola said during a briefing Monday, adding that the inflation rate could go down further to 3.4 percent in October.
“Using exchange rate to control inflation is weak,” he said.
According to previous reports, the Bangko Sentral ng Pilipinas admitted that it had been buying dollars from the market to help temper the peso’s appreciation. But the regulator stressed it would not increase its dollar-buying activities to artificially weaken the peso.
Abola said the appreciation of the local currency would bring about lower employment generation because a stronger peso makes exports from the Philippines less competitive.
When the peso appreciates, exports may slow down, “while you expect more imports because foreign goods become cheaper. Because you are spending for imports, the money is going out, so employment is being generated abroad and not domestically,” Abola explained.
On the other hand, the depreciation of the peso will result in more expensive imports making domestic firms source their materials locally, thus creating employment in the country, he added.