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 8th, 2007 at 12:03 pm
One of the principal requirements for us to use the purchasing power parity between countries with differing national currencies is the time element. Theory of PPP is time bound in that over the long term (no one knows how long) prices will reach equilibrium.Transport costs and transactions costs excluded. That is the weakness of economic theories. The time element and time lag.
When the world moved away from the gold exchange standard the standard behind currencies is simply the political standard.
In the spot markets in Thailand the exchange rate for peso to bhat is two pesos to one bhat. Using the dollar standard that would make our peso to the dollar 60 to 1. $1 = 30 Bhat.
The reason for that disparity is the fact that the BSP restricts the export of Php to only Php 10K per person and we have limited number of goods and services that are competitively priced and there are restrictions on foreign investments in the Philippines.
Once again our BSP does not trust the market.
There is little demand for pesos in the world market for currencies. Plus we opened up the uniform currency act in the Philippines allowing the holding of other currencies in the country.
Actually if the BSP were to make the peso fully convertible in the world market and get out of the business of setting short term interest rates which the market has all but abandoned already you will eventually see the close to market value of the peso vs. all comers.
BSP lending rate 7.25 %. 90 day T-bill rate is less than 4%. That means there is a savings glut and not too much liquidity.
Savings glut means you lower interest rates. Too much liquidity you raise interest rates.
A serious lack of investible assets exist.
So what does the BSP do it creates more pesos to temper peso rise and then through the Special deposit accounts it recently established it offers a higher interest rate to remove the excess liquidity that it created to protect the dollar’s slide.
Can the BSP keep this up. Nope. It already declared a paper loss of Php 50B. The BSP was capitalized with only Php 10b paid up. Where did the Php 50B come from. That is why Rey Tetangco is called the Magician. He created it out of thin air.
For the ordinary overseas workers whose paychecks are the only source of income for their families back home - Suck it up and the pain will get worse. Start sending goods that are cheaper to your loved ones from your station except for those who are in the M.E. and Europe.
It is off no use bickering on why our costs of goods in the Philippines is higher than anywhere else in Asia. That problem cannot be solved overnight or even in the medium to long term.
Philippine government is more corrupt than not and it will be almost impossible to effect effective government intervention where governance is a serious problem. That is why smuggling is increasing as imports become cheaper and that is what is keeping inflation benign.
Right now i can bet that certain insiders are making a killing shorting the dollar knowing that the BSP is playing fund manager for foreign players.
Hence you see the downward slide in the dollar going through bumps.
December 8th, 2007 at 9:26 am
It is wrong to suppose if peso is strong the imported goods will be cheaper. The inflation in the Philippines is significantly higher than in US, it means the prices are rising faster as well.
What is going on influx of foreign capital usually entails higher prices as well, investors want their money to return higher yields, so in the end those are low/middle class people who are going to pay the price. OFWs with salaries denominated in USD have been most hardly hit by now, as to the rest the life also became more expensive since prices are continuously rising, it cannot be justified by oil if we look at inflation figures comparing to developed countries.
Look at the recent example when the cheap imported onions from China were stopped, the comment it was that since February (!!!) there was no single permit to import onions in the country. As a result not only there are no good quality onions as several years ago (as I remember the price for kilo was 18-25 pesos), but there are only small “Holland” onions with the price around 80-100 pesos per kilo.
I mean it is all policies of the goverment to benefit the rich, if peso will go weaker the prices will rise, if peso will go stronger you can see what happens.
December 8th, 2007 at 9:24 am
Guys!
1. The “fundamentals” argument is bull%#$! Fundamentals mean balance and order in the whole economy, especially the real sector! (don’t be fooled by growth figures with large statistical errors)
2. Our forex status (i.e. strength) can only depend demand and supply (imports vs export earnings and remittances). I’ll give credit to our OFWs for delivering us to current strength of the peso (export sector is non-performing).
3. This also means that OFWs share part of the “weakening” of the peso. But strong and weak are “macho” terms, no one should characterize forex movements like this.
4. Weakening of the dollar can explain things to an extent, but not that large.
5. What’s this argument about the BSP on price stability (obviously someone has been reading old textbooks :>). Yes, in the old days BUT with cheap imports and most especially UKAY-UKAY operations, smuggled items THAT LARGELY DRIVES THE MARKET FOR THE GENERAL POPULATION, the BSP money supply argument is irrelevant.
6. Guys, we should go back to the real world, not imaginary ones as price stability/ inflation, macho peso images.
7. The peso is appreciating because there is not much demand (importers are losing to tons of balikbayan packages, smugglers, the government isn’t as aggressive as a dollar user anymore, plus there are many other currencies that flow in and out of the Philippines)
8. The peso is appreciating because we have so much supply (actual and imagined). Actual comes from hardworking OFWS and exporters, while imagined because the rest of the population is counting on this trend to continue and more are expected to fly out.
9. The US economy may be weakening, but as i’ve said, we are not that dependent as we used to.
10. Fundamentals!*@#$!^&*!^ I dn’t know where to begin but definitely NOT!
More power to our OFWs, export sector, industries that can earn and add to our nation’s wealth.
Professor Medalla sounds like the old books. :>
Cheers!
December 8th, 2007 at 4:08 am
What if gov’t temporarily suspend debt repayment? Will this action cause the peso to plunge?
December 8th, 2007 at 2:28 am
iwaly919
friend, we are similarly situated. like i told you i am suffering the way you do too. how can the prices go down with high price of oil? fertilizers and many farm inputs are imported. feeds for hogs and poultry also substantially rely on imports. the problem is our country does not produce much of its requirements hence any movement in the price of oil will impact on the prices of our commodities.
haven’t you asked yourself why rice from thailand and vietnam or onions from china and taiwan are much cheaper compared with homegrown? why are garments cheaper from hongkong than our own? except for our labor, nothing much we can show as made in the philippines except foodstuffs only pinoys buy abroad. we take most of our production inputs both in industries and agriculture from the outside. our sardines are packed in tins imported although we have many mines. there is little value added to the imported raw materials that we convert into marketable commodities.
my friend, i understand exactly where you are coming from. but the greater good is served by the stronger peso now. we can only hope that in the near future, our commodities will be priced more affordably.