The weakness of the local currency the peso in recent weeks cannot be blamed solely on external influences but on homegrown issues as well, according to a foreign bank analyst.
In his most recent macroeconomic readings, Joey Cuyegkeng, senior economist at ING Bank in Manila, said that while the peso was dragged along with other weakened Asian currencies on heightened geopolitical risk, the peso’s underperformance can also be traced to the country’s slightly enfeebled external sector.
Cuyegkeng said recent data showing a diminution of the country’s foreign-currency reserves or the gross international reserves (GIR) as reported by the Bangko Sentral ng Pilipinas (BSP) clearly had an impact on market sentiment on the Philippines.
The GIR was reported at only $80.786 billion in July, significantly lower compared to both the previous month’s and the previous year’s level.
Compared to the previous month, the GIR in July was $530 million lower than in June when this totaled $81.32 billion. Compared to the previous year, this was $4.72-billion weaker than the $85.51 billion in the same month last year.
Despite the decline, however, the BSP gave assurance the foreign-currency reserves should be sufficient to cover 8.6 months worth of imports of goods and payments of services and primary income.
It was also equivalent to 5.5 times the country’s short-term external debt based on original maturity and 3.7 times based on residual maturity.
Cuyegkeng also cited the weaker-than-expected export growth in June in tandem with a year-on-year drop in imports resulting to more moderate than expected June trade deficit.
“No support was also forthcoming from a relatively dovish central bank position at the Thursday policy-rate meeting,” Cuyegkeng said.
“Market seemed to have concluded the economic managers would be more tolerant than before with a weaker peso,” he added.
This week the local currency traded within the P51-per-dollar territory, with Tuesday’s P51.34 per dollar, its weakest since August 2006.
The peso has fallen more than 3 percent against the dollar thus far, the worst performance in the region, according to currency traders.
This development comes at a time when not only is the country’s external sector slightly weakened in the form of a current-account deficit but that the fiscal sector is also just beginning to spend for infrastructure and has planned a budgetary shortfall, as well.