An analyst at Global Source Partners Inc. cautioned that the possibility of another interest rate cut is adding uncertainty and pressure on the Philippine market.
Noting that the depreciation of the peso is not surprising, Diwa Guinigundo said the prospect of further interest rate cuts has raised concerns among business owners, with some warning that lower rates could prompt investors to move their capital abroad in search of better returns.
‘You know, our country still has limited capital or investment. That is why the Philippines continues to rely on foreign investments coming in,’ Guinigundo, a former deputy governor at the Bangko Sentral ng Pilipinas (BSP), said in a radio program yesterday.
The peso weakened for the 10th consecutive trading day, closing at 59.13 against the dollar on Tuesday, its lowest level on record, as market worries over slowing economic growth and potential monetary easing persisted.
The BSP previously reduced its benchmark interest rate by 25 basis points to 4.75 percent, which represents the lowest since September 2022. The Monetary Board also reduced the interest rates on the overnight deposit and lending facilities to 4.25 percent and 5.25 percent, respectively.
‘They still plan to lower it, which has become a concern for many business owners. They are saying that if interest rates in the Philippines continue to drop, what else can I gain here? I might as well go to America or invest elsewhere,’ Guinigundo said.
According to Guinigundo, the peso’s decline was partly driven by political uncertainties, noting that despite allegations of wrongdoing and reports of illicit transactions, no one has been charged or held accountable months after the controversies surfaced.
‘The non-fundamental factor here is political uncertainty. When investors or business owners in the Philippines see that there is bad governance, where almost 30 to 40 percent of the national budget ends up in the pockets of some politicians and contractors,’ Guinigundo said.
Finance Secretary Ralph Recto has estimated that economic losses from corruption in flood control projects may have averaged between P42.3 billion to P118.5 billion annually from 2023 to 2025.
Without these losses, Recto said the economy could have expanded by as much as six percent, and the potential number of jobs created could have ranged from 95,000 to 266,000, essentially enough to boost economic activity.