The Philippine’s peso is hovering at historic lows amid a confluence of economic challenges at home and geopolitical turmoil abroad. On Friday, the currency hit an all-time low of 62.71 to the US dollar. Here’s everything you need to know about the plunging value of the currency: The peso has been on a downward trajectory since the start of the year, losing about 6 percent of its value against the US dollar since January 1.
The currency has broken several records over the past few months amid rising oil prices and other negative headwinds from the US-Israel war on Iran. The peso hit a record low of 61.847 to the US dollar on July 24, before falling further to 62.265 last Friday. The peso has continued its slide this week, closing at 62.565 on Wednesday and sinking to 62.71 on Friday.
The peso is responding to several negative trends in the Philippines economy and the strength of the US dollar. Before the war, the Philippines imported almost all its oil from the Gulf. In March, Manila was forced to declare a state of national emergency when Iran’s effective shutdown of the Strait of Hormuz disrupted supplies.
As oil prices have risen, Philippine importers have had to convert more pesos for US dollars to purchase dollar-priced crude, driving down the value of the local currency. At the same time, rising yields of US Treasury Bonds – a type of loan to the US government – have encouraged international investors to trade the currencies of developing economies for safer dollar-dominated assets, pushing the peso lower. The Philippines’ strained public finances and large trade deficit have exacerbated these downward pressures.
Currency depreciation is not inherently negative, but it typically benefits exporters at the expense of consumers. A weaker currency means that firms can sell their products overseas more cheaply, but that also that households pay more for imported goods. The Philippines’ inflation rate stood at 6.1 percent in August, well above regional peers and double the central bank’s target of around 3 percent.
Ashwin Binwani, founder of Alpha Binwani Capital, a private closed-end joint venture fund in Singapore, said the peso could sink past 63.00 to the dollar if oil stays above $90 a barrel. The main transmission is through imported inputs and energy.” President Ferdinand Marcos Jr’s administration has pledged to improve fiscal discipline and said that it expects the central bank to intervene as necessary to stabilise the currency. One bright spot for the Philippines is the large amount of remittances it receives from the more than two million Filipinos working overseas.
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