Bangko Sentral should weaken peso to stimulate economy: economist

MANILA - The Bangko Sentral ng Pilipinas should weaken the peso to stimulate the economy as simply easing monetary policy does not work during recessions, an economist said on Monday. 

The BSP has kept its policy rate to a historic low of 2.25 percent while reducing banks’ required reserves as part of efforts to revive the economy by freeing more money for businesses and consumers.

“Even if interest rates are low, money is plentiful, it will not have much effect on the economy,” Chikiamco said in an interview with ANC. 

He said this was because of the “demand shock” during a recession wherein both businesses and consumers are reluctant to spend. Chikiamco also noted that banks have also become stricter with loan requirements, reflecting their worries over possible loan defaults.

• BSP in wait-and-see mode, to keep rates on hold
• Bangko Sentral cuts reserve requirement ratio of thrift, rural banks by 100bps

Weakening the peso would be a better way to stimulate spending, he said. 

“I’m for weakening the peso because that will put money into the pockets of OFWs, it will protect local industries, it will stimulate the economy,” Chikiamco said. 

He said the central bank should look at “aggressively purchasing more dollars” to weaken the peso to around 50 to 52 to the dollar. 

The peso averaged 50.744 to the dollar at the end of 2019, but hit an average of 48.4822 in October this year, according to data from the BSP. The local currency opened at 48.15 Monday, according to the Bankers Association of the Philippines’ website. 

The Department of Finance said Tuesday the Philippine peso appreciated because of the country’s benign inflation and a balance of payments (BOP) surplus reflected in its record-high foreign currency reserves as of June this year.

Since January 2, the peso has strengthened 4.5 percent. 

The Department of Finance has said that the peso strengthened because of the Philippines’ low inflation rate, growing dollar foreign exchange reserves, as well as the drop in the country’s imports versus its exports during the COVID-19 lockdowns.