Weak Philippine Peso Has 'Minimal Effect' on the Economy: Cbank
Manila. Philippine central bank governor Nestor Espenilla on Wednesday (16/08) assured senators deliberating on the government's proposed 2018 budget that the peso's weakness would have "minimal effect" on the economy over the medium term.
The peso has weakened to 11-year lows and is Asia's worst performer so far this year. It has lost more than 3 percent against the US dollar, whereas its peers have all gained against the greenback.
Espenilla said the peso's decline reflects investors' concerns that the country could post its first current account deficit in 15 years this year.
The gap is being driven by imports of capital goods and raw materials which are helping to feed a construction boom, as well as by purchases of consumer products.
"The current account position signals the country's higher propensity to import as the country gears up for higher growth momentum," Espenilla said during a senate hearing on the government's proposed 3.77 trillion pesos ($73.40 billion) 2018 spending plan.
"It is worth noting that the recent decline in the peso should have minimal effects on the country’s macroeconomic conditions over the medium term," he added.
President Rodrigo Duterte has unveiled a six-year, $180 billion spending spree to build new railways, upgrade the country's creaking roads and airports, to help lift economic growth to as much as 8 percent during his term.
Central bank Assistant Governor Noe Ravalo said there was no fundamental reason to panic, reiterating the central bank allows market forces to determine the foreign exchange rate.
"But we do reserve the right as a regulator to participate in the market to address what we see as excessive volatilities," Ravalo said in a separate media briefing.
Espenilla said the country's gross international reserves, underpinned by strong remittance inflows from Filipinos working and living abroad, were more than enough to meet the economy's foreign exchange requirements. "The recent depreciation may also be considered a normalization from sustained fast appreciations of the peso," Espenilla said.
Second-quarter GDP data due on Thursday is expected to show the economy expanded by 6.2 percent from a year earlier, according to a Reuters poll.
Although slower than the first quarter's 6.4 percent pace, it would still make the Philippines the second-fastest growing economy in Asia after China.
Reuters
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