From the looks of it, Gnoysa is likely to win the forex trading game with a P41.56 forecast for end of December!
The peso on Wednesday breached the P41 level, hitting P41.99 before closing at P42.03 against the dollar. When the forex market opened this morning, the peso was at P41.90 again and the weighted average as of 10.44 a.m. today was P41.887 to the dollar.
Both inflows from overseas Filipino workers sending money home for the holidays and investors taking positions in the stock market lifted the peso further. And because we all expect the money to continue to come in, this only means you gotta get ready to see the peso rising even more in the next weeks.
Former Socioeconomic Planning Secretary Felipe Medalla sees a P38 to a dollar scenario as a very likely one in the coming months, unless the government adopts the right policy mix to keep the peso from appreciating.
Medalla thinks that if the national government decides to become a big buyer of dollars and use these to prepay its dollar-denominated debt, the local currency might slow down its appreciation enough to keep exporters and OFWs from suffering more.
He tells me that this, of course, should be closely coordinated with the Bangko Sentral ng Pilipinas, so that there are no surprises, I suppose in terms of volatility.
The monetary police have an unviable job. Can you imagine how hard it would be to manage everyone’s expectations on the currency? On the one hand, the spike in global oil prices would fry us all if the peso has not appreciated. Imports are also cheaper, and this might make our Christmas expenses a lot lower. On the other hand, as everyone has been saying, OFWs are really feeling the pinch and so are dollar-earning industries like the call center business.
Medalla, with his usual wit and candor, says the government could try two more options. Peg the peso to two or three currencies like the euro and yen, or use capital controls – that’s economist-speak for controlling the inflow and outflow of short-term money. These two other options, of course, carry with them their own difficulties. Like who chooses which foreign money should come in and which should stay out? Or which currencies should the peso be pegged to? I don’t know about you, but I think these two options are radical to begin with and would most like turn off the conservative guys up there in Bangko Sentral.
In the meantime, enjoy the day and focus on simple things to enjoy like family, the upcoming holidays and friends.
December 7th, 2007 at 11:28 am
The BSP is already selling warrants for dollar ROP bonds that are in reality options (derivatives) to replace dollar bonds in peso denominations at a guaranteed fixed rate of exchange. That makes them as good as dollar denominated bonds since they have a guaranteed fix rate of exchange. Otherwise the market price of the dollar ROP’s will collapse. How many more tricks will Rey “the magician” Tetangco employ? Some guys are making a killing on this? That is what you get when you have a very narrow and small actual market for currencies based on the trading floor of the BAP. A select few gets all the cream and market fundamentals get distorted.
Never but never trust Central Bankers. In the long run it is not their money that they manage.
December 7th, 2007 at 11:08 am
When will the “Gods of the Universe” realize that when the moon is in a particular position the tide rises. Get out of the way and when the tidal wave washes over it will eventually recede.
The minute the dollar reaches that tipping point and there will be a rush to abandon it there will be another group that will be waiting for it to reach bottom. The few who stand to gain from asset inflation in pesos will move to liquidate their earnings and demand for dollars will rise again. The faster you let it happen the faster it will reach bottom and correct.
This way allows insiders to make a killing of the so called managed float. Milton Friedman was right. The BSP is simply creating another set of problems. The CPI will go into disinflation mode even faster and the import dependent economy will benefit.
We have a domestic subsistence economy which is almost immune to currency changes and a stronger peso helps. Plus the net share of dollar receipts in the export sector is relatively small. Once people know that the BSP will allow a rapid rise in the value of the peso instead of subsidizing and creating more pesos we could have almost no inflation.
Forget about the deficit for now as indirect taxes will almost surely drop.
A rentier and rent seeking based economy will cash out their rising asset prices.
Banks whose main loans are collateralized with real estate will move to sell in a bull market. Drop interest rates for mortgages and establish a Government Sponsored Enterprise to guarantee a secondary mortgage market for mortgages.
Now is the time for the price of credit in the Philippines to collapse.
The guys of the BSP always talk about market fundamentals but keep trying to manage the market. Get out of the way.
December 7th, 2007 at 10:17 am
ofw_cebu, same here. same here.
December 7th, 2007 at 10:11 am
iwaly919, i think OFWs send money home to the Philippines to feed and clothe their families, buy a good house and send their children to school. making the economy stronger will have to be a far second priority. the peso-dollar exchange rate is a consequence of the dynamics in the market, not just in the Philippines but also in other countries, not really a design by any government, as far as I can tell. However, as Medalla says, the government can react to what is happening in many different ways — and that reaction will determine whether the peso will have either a net effect that will be good for the economy for the long term. Who determines what is “good for the economy” for the long haul — that is perhaps the more interesting question. As prince noted, the tradeoff now is between the good of the general public vs OFWs and exporters. Which one should Mother Philippines choose?
December 7th, 2007 at 9:54 am
prince, interesting! what happens when a central bank tries to do all three? i guess in Medalla’s proposal, it’s really the national government that will do the dollar buying. does that make any difference?