The Philippine peso has emerged as among Asia’s strongest currencies even amid a pandemic-induced global economic downturn despite the country’s mild inflation rate. It also posted a balance of payments (BOP) surplus reflected in its record-high foreign currency reserves as of June this year.
Finance Secretary Carlos Dominguez III said that as of September 1, the peso equivalent of the US dollar was P48.48 based on the reference exchange rate bulletin of the Bangko Sentral ng Pilipinas (BSP).
Compared to its parity value of P50.8 to USD1 last January 2, the peso appreciated by at least 4.5 percent against the greenback. Dominguez said confidence in the Philippine 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, compared to its exports during the strict lockdown imposed by the government to contain the spread of the Covid-19 infection, has led to an overall favorable BOP position, which contributed to the strong performance of the peso, je explained.
“(Second), because we were able to tap 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 USD94 billion. This is actually larger than our total foreign debt,” Dominguez added in response to a query on why the peso has remained strong amid the Covid-19 crisis.
The Bangko Sentral ng Pilipinas (BSP) reported an overall BOP surplus of USD80 million in June 2020, a reversal from the USD404 million BOP deficit recorded in the same month last year. This favorable BOP position is reflected in the unprecedented amount of USD98 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, and its currency. If I’m not mistaken, it’s only the Philippine peso and the Japanese yen that have actually appreciated in values since the start of this year. And now actually ours has appreciated by 3.4 percent or thereabouts,” he said during a Zoom forum last Aug. 10.