Peso 'undervalued' vs dollar based on 'Big Mac Index,' says The Economist


Posted at Jul 17 2018 04:15 PM | Updated as of Jul 17 2018 05:46 PM

Peso 'undervalued' vs dollar based on 'Big Mac Index,' says The Economist 1

MANILA -- The peso is 52.5 percent undervalued against the dollar, based on the price of a McDonald's Big Mac, according to The Economist.

A Big Mac costs P140 in the Philippines compared to $5.51 in the US, implying an exchange rate of P25.41 to the dollar, according to publication's Big Mac Index.

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The difference in the actual exchange rate of P53.49 to the dollar "suggests" the peso is 52.5 percent undervalued, according to the index.

However, The Economist also cautioned against taking the Big Mac index too seriously saying "Burgernomics" is merely a tool to make exchange-rate theory more digestible, rather than a precise gauge of currency misalignment.

"If you take into account that the Philippines is a developing country where labor costs are quite low, then it is undervalued by only 11 percent," said Simon Cox, emerging markets editor at The Economist.

Cox, said in an interview with ANC's Market Edge that the Philippines infrastructure drive has put pressure on the country's balance of payments and driven down the value of the peso. 

The Egyptian pound is the most undervalued at 68.2 percent. Only 2 currencies are overvalued at against the US currency, the Swiss Franc at 18.8 percent and the Swedish Krona at 5.8 percent.