THE Philippine economy slowly humming back to life amid easing lockdown guidelines could further provide support to the local tender, which has been stable despite the prolonged quarantine period.
The peso, which has been trading within P50.26 to P50.90 levels since April, has been having strong trading amid the coronavirus disease 2019 (Covid-19) pandemic, RCBC Chief Economist Michael L. Ricafort told the BusinessMirror.
However, he said, the peso can perform better with the “gradual reopening” of businesses to jumpstart the economy and investor appetite.
“Gradual reopening of economies locally and worldwide could also support sentiment on the local financial markets including the peso, amid plans to scale down the lockdowns down to the barangay level, in able for broader business/economic activities to resume further,” Ricafort explained.
The Inter-Agency Task Force for the Management of Emerging Infectious Diseases (IATF) recently released new guidelines for community quarantine, allowing more businesses to resume full operations. The lockdown is currently categorized as enhanced community quarantine (ECQ), modified ECQ, general community quarantine (GCQ) and modified GCQ.
The revised guidelines cite the degree at which businesses are allowed to operate. For example, agriculture, forestry, fishery, delivery and courier services for essential goods can fully operate under ECQ, MECQ and GCQ.
Essential goods and services firm, media and utility, among others, can only operate at 50 percent under ECQ. However, they can run at full capacity under MECQ and GCQ.
Under modified GCQ, barber shops, salons and other personal-care services and dine-in services are allowed given that they comply with the 50-percent seating capacity rule.
Metro Manila, Laguna, Bataan, Bulacan, Nueva Ecija, Pampanga and Zambales are currently MECQ zones. Cebu and Mandaue cities are under ECQ.
GCQ is imposed in Tarlac, Aurora, the Cordillera Administrative Region, Regions 1, 2, 4-A (except Laguna), 4-B, 5, 6, 7 (except the cities of Cebu and Mandaue), 9, 10, 11, 12, 13 and the Bangsamoro Autonomous Region.
No area has been classified as modified GCQ yet. The IATF is expected to make an announcement regarding this after May 31.
“[F]urther reopening of economies locally and in many other countries around the world … could increase business/economic activities and somewhat improve valuations on investments,” he added.
Robust performance
“The Philippine peso has been a surprise outperformer in the region despite natural calamities, a pandemic and now free-falling GDP [gross domestic product],” ING Bank Manila Economist Nicholas Antonio T. Mapa said. GDP contracted 0.2 percent in the first quarter, the first time since 1998, due to the pandemic.
Mapa said the peso has outpaced fellow emerging-market currencies, falling by roughly 0.13 percent, while others suffer steeper declines amid economic slowdown due to the pandemic.
Ricafort attributed the peso’s strength to the decline in global oil prices as lockdowns temper demand for the product.
“Since the Philippines imports almost all of its oil/petroleum requirements, the sharp decline in global oil prices reduces the country’s import bill, narrows the country’s trade deficit, and helps further ease inflation, thereby supporting a stronger peso exchange rate,” he explained.
Apart from this, the robust gross international reserves (GIR) of the country have been supporting the peso, Ricafort added.
The Bangko Sentral ng Pilipinas reported that GIR rose by 0.9 percent to $88.99 billion in March from $88.18 billion the previous month. This can cover eight months’ worth of imports of goods and services and payments of primary income.
Ricafort noted that the dollar reserves could still increase in the coming months due to relatively narrower trade deficits and proceeds from the government’s foreign borrowings, among others.
This, however, could be offset by a slowdown in foreign tourism receipts and foreign investments, among others, due to lockdowns, he added.
In the coming months
The peso exchange rate against the US dollar could still be relatively stable, or even slightly stronger, following the trend for the past two years, Ricafort said.
The local tender is expected to trade within P50 to P51 levels for the rest of the year, he said, on the back of higher dollar reserves and narrower trade deficit.
UnionBank Chief Economist Ruben Carlo O. Asuncion, meanwhile, said the peso is expected to trade between P50.50 and P51.
“If and when the perception [builds up] about the Philippines having ‘strong’ financial strength, one would expect its currency to continue its appreciation and strength throughout 2020,” he said.
Mapa, meanwhile, also warned that the “supply of foreign currency is likely to constrict in the coming months with remittance flows slowed.” Latest data from the Central Bank showed that personal remittances dipped by 10.9 percent to $2.62 billion in February from $2.94 billion the previous month.
This week, Ricafort said the peso exchange rate could range within P50.40 to P50.70 levels, noting that the renewed tensions between the US and China could weigh on trading sentiment.
On Friday, the local tender ended weaker at P50.7 from P50.61 the previous trading day, according to data from the Bankers Association of the Philippines.
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