ECONOMISTS are prodding the government to address issues that are within its control-by strengthening domestic energy and food production to reduce import dependence, as the local currency is at risk of falling to the P65-per-dollar level due to lingering geopolitical risks.
In separate responses, Jonathan L. Ravelas, senior adviser at Reyes Tacandong and Co. and ADMU economist Ser Percival K. Peña-Reyes said the peso could approach P65 per dollar especially if geopolitical risks worsen further.
Peña-Reyes told the BusinessMirror on Monday: ‘The Peso could approach P65 per dollar if the US dollar remains strong, oil prices rise further, capital outflows accelerate, or geopolitical tensions worsen.’
The local currency plunged to a new all-time low of P63.95 per dollar on Monday. The peso has been hitting fresh record lows for four consecutive trading days.
Based on data from the Bankers Association of the Philippines (BAP), the rate is 33.5 centavos weaker than its P63.615 finish against the greenback on Friday.
As such, Peña-Reyes said the government should provide ‘targeted assistance to vulnerable households, maintain fiscal discipline, and strengthen domestic energy and food production to reduce import dependence.’
Indeed, Ravelas said, the local currency remains vulnerable as geopolitical risks linger, but he emphasized the importance of addressing internal issues to prevent the peso from further declining, particularly to the P65-per-dollar level.
‘As long as geopolitical risks remain the USD/PHP will remain vulnerable. Risks 65 levels. Unless we address issues on food security, transport, electricity. We need conservation,’ Ravelas pointed out.
‘Conserve water, save electricity, do not waste food, this can also translate to plant in your backyard. Rationalize your use,’ he also noted.
Pace of depreciation worrying
Peña-Reyes said ‘the pace of depreciation is concerning, particularly if the peso continues to set record lows over a short period.’
‘A weaker currency can raise import costs, fuel inflation, and increase the burden of foreign-currency debt,’ he explained further.
What matters, he added, is the depreciation becomes ‘sustained and disorderly,’ rather than the record-low level alone.
While he agreed that the peso could approach P65-per-dollar, he said this is ‘not inevitable, and the timing is uncertain.’
‘Lower oil prices, improved global conditions, and stronger foreign-exchange inflows could help stabilize the currency,’ he said.
He also warned that recent depreciation of the peso can already be considered ‘inflationary.’
‘A weaker peso raises the cost of imported fuel, food, fertilizer, and other essential goods. These higher costs can feed into transportation, electricity, and retail prices. The longer the depreciation persists, the greater the risk of broader price increases,’ Peña-Reyes also told this paper.
For his part, John Paolo R. Rivera, Senior Research Fellow at Philippine Institute for Development Studies (PIDS), explained that the recent weakening of the local currency may be attributed to ‘persistent and growing dollar demand, elevated oil prices, global uncertainty, and pressures from the widening [balance of payments] BOP deficit.’
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‘Its weakness despite the BSP’s tighter policy stance suggests that external pressures continue to outweigh the support from higher interest rates,’ added Rivera.
While monetary tightening can help stabilize expectations and moderate depreciation, it cannot fully offset these pressures, he pointed out.
‘Concern is not simply reaching 64 but the inflationary consequences of sustained peso weakness,’ added Rivera.
Within Monday’s trading session, the peso’s lowest point was seen at P63.95 against the dollar, while its strongest point was at P63.5 per dollar.