Peso hits new low of P58 to US dollar

·4 min read

THE local currency hit a new record low Wednesday, Sept. 21, 2022, closing at P58 vis-a-vis the US dollar, threatening to increase inflationary pressures and hit consumer sentiment while auguring well for exporters—if they can find buyers for their goods and services.

The peso opened weak at P57.7 against P57.4 on Tuesday and further weakened to P58 at the close from P57.48 the day prior.

The weighted average was at P57.89 from P57.42 previously, based on Bankers Association of the Philippines data.

The peso began the year at around P51 to the US dollar.

The rapid depreciation of the peso against the greenback has both advantages and disadvantages.

Steven Yu, immediate past president of the Mandaue Chamber of Commerce and Industry, said, “The weakening of the peso is positive for the exporters and will make their products more competitive, especially that the Chinese yuan also depreciated.”

“It is a boon for exporters except that the US consumer spending is slowing down, which caused many Mepz (Mactan Economic Zone) firms to downsize operations i.e. garments etc.,” Yu said Wednesday.

The recovery of exports has been slow, according to Fred Escalona, executive director of Philexport Cebu.

“A strong US dollar would normally be good for exports; however, imports still outpace exports especially with the dramatic rise in (prices of) fossil fuels... Exporters are experiencing a drop in orders, thus negating the benefits of a strong US dollar,” Escalona said.

A strong dollar makes it more expensive for importers to buy goods because they would need to use more pesos to buy the dollars required to buy goods from abroad.

A strong dollar, however, would be good for overseas Filipino workers as their families receiving their remittances would be able to exchange more pesos for their dollars, but Escalona said the peso proceeds will just be eaten up by the five-month advance in the Consumer Price Index (CPI).

An indicator of inflation, the CPI measures the change in prices paid by consumers for goods and services. The Philippine inflation rate was 6.3 percent in August, exceeding the two to four percent target.

Business process management firms should also benefit from a strong dollar, but they should monitor shifts in product trends to take advantage of the exchange rate pressures, Yu said.

Yu said the weak peso also impacts business owners, but it is mostly inflationary in nature.

“It will add to the surge in costs of operating their businesses. Their main option is to increase efficiency and tighten their belts,” Yu said.

Consumer spending, on the other hand, will continue to slow down as consumers will prioritize essential products for their day-to-day sustenance.

“Businesses should strive for more efficiencies,” he said.

Yu noted that the reopening of the economy from Covid-19 restrictions will help provide a buffer for the micro, small and medium enterprises, but he stressed that “purchases of high-priced non-essentials will be deferred by the consumers as the inflation bites.”

“What the world is experiencing now is the ‘strong US dollar’ symptom further exacerbated by the series of interest rate hikes of the Fed. More likely than not, the whole world is plunging into recession soon,” he added.

According to the Associated Press, the US Federal Reserve is expected to raise its key short-term rate by a substantial three-quarters of a point for the third consecutive time. Another hike that large would boost its benchmark rate — which affects many consumer and business loans — to a range of three percent to 3.25 percent, the highest level in 14 years.

The US has been aggressively raising interest rates in a bid to control inflation that hit 8.3 percent in August fueled in part by soaring energy prices caused by Russia’s invasion of Ukraine and heavy demand from an economy bouncing back from the Covid-19 pandemic.

The Bangko Sentral ng Pilipinas, on the other hand, is expected to raise interest rates on Thursday, Sept. 22 with analysts forecasting a 50-basis-point increase.

“Until the Fed stops its interest rate hikes and the Russian-Ukraine conflict eases, the US will catch a cold and we will all be down with pneumonia. The outlook is not hopeless, but it’s gloomy weather for us so far,” said Yu.