The peso has emerged as one of Asia’s strongest currencies even with a pandemic-induced global economic downturn, according to the Department of Finance (DOF).
The DOF attributed this to the country’s mild inflation rate and a balance of payments (BOP) surplus reflected in its record-high foreign currency reserves as of June this year.
As of September 1, the peso equivalent of the US dollar was 48.48 based on the Reference Exchange Rate Bulletin of the Bangko Sentral ng Pilipinas (BSP). Compared to the January 2 rate of 50.8 to a dollar, the peso appreciated by at least 4.5 percent against the greenback.
Carlos Dominguez, DOF secretary, said in a statement yesterday confidence in the economy and the local currency are also among the factors that have raised the value of the peso against the US dollar.
The drop in the country’s imports as compared to that of exports during the strict lockdown imposed by the government to contain the spread of COVID-19 has led to an overall favorable BOP position, Dominguez said, which contributed to the strong performance of the peso.
“(Second), because we were able to tap the foreign loans first from the multilateral agencies and then later from the bond market at very favorable terms, we have increased the size of our foreign reserves. In fact our foreign reserves now is at roughly $94 billion. This is actually larger than our total foreign debt,” Dominguez said in a recent virtual forum, in response to a query on why the Philippine peso has remained strong amid the COVID-19 crisis.
The BSP reported an overall BOP surplus of $80 million in June 2020, a reversal from the $404 million BOP deficit recorded in the same month last year.
The DOF said this favorable BOP position is reflected in the unprecendent amount of $98 billion in gross international reserves (GIR) as of end-July 2020.
The high GIR level is equivalent to 8.9 months’ worth of imports of goods and payments of services and primary income, and is about 7.5 times the country’s short-term external debt based on original maturity.
If based on residual maturity, the GIR is 4.9 times the country’s short-term external debt, according to the BSP.
On top of these factors, Dominguez said the Philippines’ low inflation rate of 2.7 percent as of July this year also contributed to the rise in the peso’s value against the US dollar.
“Our inflation rate is relatively mild. And I think people have confidence in the Philippines, in the currency. If I’m not mistaken it’s only the Philippine peso and the Japanese yen that have actually appreciated in values since the beginning of this year. And now actually ours has appreciated by 3.4 percent or thereabouts,” Dominguez said.
In addition to the Philippine peso and the Japanese yen, only the Taiwanese dollar and the Chinese yuan remained firmed against the American greenback, while most other Asian currencies have weakened. (A. Celis)