Monday’s weakest peso marks the 23rd day of investors pulling out from the Philippine stock market.
According to Rappler, the peso dropped by 3.5 percent in September alone, a trend that began early in the month when President Duterte’s declared a “state of national emergency on account of lawless violence” after the September 2 bombing in Davao City that killed 14 people and injuring almost 60.
The peso dip can also be attributed to the recent tirades of President Duterte to the United States and President Barack Obama as well as United Nations Secretary General Ban Ki-moon which prompted Standard & Poor’s (S&P) to rate the country with political uncertainty.
According to GMA News, S & P’s Global Ratings said last week that socio-political concerns were starting to affect the confidence of foreign investors in the country.
“International investors may be getting worried about potential diplomatic complications and short-term law and order issues on the ground,” S&P said in the September issue of Asia-Pacific Economic Snapshots.
In a Wall Street Journal report, S&P’s Global Ratings published last week indicated that the predictability of policy-making in the Philippines had “diminished somewhat” under the Duterte administration.
“The firm said it may lower the country’s sovereign ratings if the reform agenda stalls or if certain economic metrics deteriorate,” the Wall Street Journal reported.
The report also explained a note coming from HSBC (dated September 19) that investors have already pulled out roughly $310 million from the country’s stock market in just a span of a month.
“HSBC characterized the outflows as significant in helping to drive the peso lower,” the Wall Street Journal report said.
The Bangko Sentral ng Pilipinas (BSP) meanwhile assured that continued weakening of peso could be due to the uncertainties posted by the next action of the U.S. Federal Reserve.
“The peso movement reflected continuing uncertainty about the U.S. Fed’s next policy action, just like the other regional currencies, plus strong FX (foreign exchange) demands for fixing and corporate requirements,” BSP Governor Amado Tetangco Jr. told Rappler.
The BSP further assured that the country’s stable macroeconomic fundamentals will bolster the current instability of the peso, BSP Deputy Governor Diwa Guinigundo explained.
“Based on our sound market indicators, including the sustained external payments surpluses and significant gains in our dollar reserves, the peso should be firm. However, given both external and domestic factors driving market sentiment, soft patches have been seen in the foreign exchange market,” Guinigundo noted.
“…any concern about the sustainability of macroeconomic policy should be tempered by the fact that the same policies that have produced robust growth, low inflation and interest rates, sustainable fiscal position, and sufficient external buffers will be pursued by the Philippines in the next six years,” Guinigundo added.
According to Rappler, the macroeconomic policy of the country has hit a record high of $85.9 billion at the end of August – boosting a healthy level of foreign reserves.
Moreover, U.S. Fed also explained that the displayed confidence will likely continue through the second half and an indication of a foreseeable one-quarter point rate hike before the end-2016 and possibly another two in 2017.
In an additional report by ABS-CBN’s TV Patrol, OFW families as well as the Philippine Exports Confederation Incorporated (PHILEXPORT) expressed that the strengthening dollar is welcome news.
“The peso is still overvalued even at this stage. They’re really talking about 50 and even more as a real exchange rate which will give us some competitive advantage,” Sergio Ortiz-Luis Jr., PHILEXPORT president said.
The Bangko Sentral ng Pilipinas (BSP) also assured the public that the government will be ready to implement policies to stable market prices.
“The BSP stands ready to implement necessary policy actions to maintain price stability conducive to balanced and sustainable economy,” Tetangco said.
On September 27, a day after the Philippine peso dipped to its lowest in seven years, Budget Secretary Benjamin Diokno clarified that the peso depreciation is a result of the uncertainty in the next action of the U.S. Fed and the impending increase rates in the U.S. and not due to the Duterte’s controversial statements.
“We’ve seen the peso going to P55 (to U.S. $1) in the past. The depreciation of the peso is a result of the strengthening of the dollar, more than the weakening of the peso,” Diokno said.
Diokno also said, “But the (projection) is that before the end of the year, the Fed will eventually increase the interest rates. So that it is more attractive for hot money to go back to the US.” He was referring to the foreign portfolio investment.
“The other fear is that the depreciation of the peso will result in higher inflation. This is misplaced. The official inflation target is two to four percent. We are much lower than two,” Diokno added.
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