Why is the Philippine peso so strong?

by Cathy Rose A. Garcia, ABS-CBNnews.com

Posted at Feb 06 2013 12:12 PM | Updated as of Feb 07 2013 02:21 AM

MANILA, Philippines - Overseas Filipino workers and their families, as well as exporters and business process outsourcing companies, are feeling the pinch of a strong Philippine peso. But what is behind the rising value of the peso against the US dollar?

In an interview with DZMM's Noli de Castro on Wednesday morning, Bangko Sentral ng Pilipinas deputy governor Diwa Gunigundo sought to explain the reasons behind the peso's continued strength. 

"Mahina ang ekonomiya ng America at dahil dito bumabagsak pati ang dolyar. Samantalang ang bansa po natin, simula 2005, ang ating balance of payments, ito po ang pinagsama-sama ang mga pumapasok at lumalabas na dolyar, palagi po tayo surplus. Mas marami ang pumapasok (na dolyar) -- mula sa exports, remittances, tourist receipts at mga revenues natin mula sa business process outsourcing. At dahil dito umaakyat po ang valor ng piso laban sa dolyar," he said. 

Gunigundo said the BSP has been actively buying dollars in the foreign exchange market to keep the peso-dollar exchange rate stable.

"Alam niyo po ang BSP ay laging nasa merkado. Kami po ay andiyan upang mapanatili natin ang kaayusan ng palitan ng piso at dolyar. Noong po 2012, mahigit po 9 na bilyon ang ating partisipasyon sa Philippine Dealing System - ang bilihan at bentahan ng dolyar sa Pilipinas. Kung ang BSP po ay wala sa palitan, baka po mas malakas ang piso sa dolyar," he said.

The BSP, Gunigundo said, has also been introducing measures to curb capital inflows and temper the peso's gains. This includes preventing overseas funds from investing in the BSP's special deposit accounts (SDA), and cutting the interest rates on these SDAs.

"Ang BSP ay may mga hakbang para ma-moderate ang pagpasok ng dayuhang puhunan sa bansa, o yun tinatawag na portfolio investments. Una, pinagbawalan ang pagpasok ng non-residence funds doon sa SDA ng BSP, yan ang isang rason kung bakit lumakas ang piso sa dolyar. Ang mga mamumuhunan ay pumapasok sa stock market, bonds, government securities at maging sa SDA ng BSP. Sa pagpigil ng BSP, medyo humina ang pagpasok ng puhunan at dahil dito ay nakita natin na medyo mas matatag na palitan ng piso laban sa dolyar," the BSP official said.

Hard to predict 

The peso has averaged P41.20 to a dollar in the fourth quarter last year from P41.90 in the third quarter. So far this year, the peso has already gained 1% to 40.64 against the dollar. 

Many economists believe the peso will further strengthen this year. Investment banking giant Goldman Sachs recently said in a report that the peso-dollar exchange rate may reach P37.50 by the end of 2013. 

"Mahirap pong magsabi tungkol sa kung anong antas o anong lebel pupunta ang ating piso laban sa dolyar, mahirap po yan," Gunigundo said.

But Gunigundo believes the peso-dollar exchange rate will remain stable this year.

"Ang masasabi lang po natin ay unang-una ito pong balance of payments, 'yun pong pumapasok at lumalabas (na dolyar), nananatili pong matatag. Noong 2012, ang balance of payment ay surplus ng mahigit $9 billion. Ito pong 2013 at 2014, inaasahan po natin ito po ay mananatili sa surplus. Ang ibig sabihin nito, mananatiling matatag ang palitan ng piso laban sa dolyar," he added.