The country’s strong economic fundamentals, along with the gradual reopening of the domestic economy and the sustained build-up of its foreign reserves, are expected to further boost the Philippine peso’s strength against yhe US dollar and other currencies.
Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno, in a recent briefing, said the peso continues to show resilience even during the pandemic as the “market continues to focus on the Philippines’ strong macro-economic fundamentals.”
As of December 10, 2020, the peso had appreciated by around 5.35% against the greenback after it closed the trade at P48.07 compared to its P50.41 closing level in end-2019, he said.
Economic managers’ peso-US dollar assumption for this year has been revised to P48-50 and between P48 and P53 for 2021-2022. Diokno attributed the trend partly to the government’s ability to manage its debt obligations, citing the Philippines’ favorable ranking among emerging market economies.
Ge said other supportive factors for the peso include the gradual recovery of foreign direct investments (FDI) and remittances, affirmation of the country’s credit ratings, increase in foreign exchange reserves, the national government’s US dollar deposits with the BSP, and gains from BSP’s investments overseas.
“The BSP believes that the key to keeping the stable performance of the peso is to preserve the country’s sound macro-economic fundamentals and continued adherence to a market-determined foreign exchange policy,” Diokno said.
For 2021, he said the local currency “should continue to reflect emerging demand and supply conditions in the foreign exchange market, and sustained soundness in the country’s macro-economic fundamentals.”
The BSP top official, however, said risks remain which include concerns on the upticks in Covid-19 infections, OFW deployment, tourist arrivals, and the availability and deployment of Covid-19 vaccines.
Among the positive impacts of the peso’s appreciation against the US greenback are the drop in the peso parity of the government and private sector’s foreign debt.
“In this sense, when the peso appreciates, then the country will spend less pesos for servicing foreign-denominated debts, hence, enabling it to realize savings, which can be used to fund essential public expenditures,” he explained.