BSP exec: Peso weakening

MANILA, Philippines - The peso actually weakened in value for the past two decades in real terms, the Bangko Sentral ng Pilipinas (BSP) said, as the local unit plunged to its lowest level for the year on Tuesday.

“If we take a longer view of the economy, from 1995 to 2012, the peso has actually depreciated in real terms against a basket of currencies,” said Francisco Dakila Jr., director of Center for Monetary and Financial Policy.

The measurement, called real effective exchange rate (REER), takes into account the effect of inflation on trimming the value of currency. It gauges the value of the peso against a basket of major currencies.

The most watched is the basket measuring the peso’s value against major trading partners which now include the Australian dollar, euro, US dollar, Hong Kong dollar, Thailand baht, Malaysian ringgit, Taiwan dollar, Singapore dollar, South Korean won, United Arab Emirates dirhams and Chinese yuan.

The central bank generally monitors the REER to measure the peso's strength. It justifies that REER is a better gauge than the day-to-day fluctuations of the peso against the dollar.

“Basically, we were able to accommodate a nominal appreciation of the peso, but in real terms, the peso actually declined in value,” BSP Deputy Governor Diwa Guinigundo told reporters in a briefing.

Concerns over a strong peso have been repeatedly raised, particularly by dollar-earning exporters, families of migrant workers and business process outsourcing employees. A firm peso trims the value of their income.

Last year, BSP data showed the local unit strengthened by 6.8 percent versus the greenback to become Asia’s second best performer. Guinigundo however said with the REER actually declining, it means dollar earners did not actually lose money.

“The competitiveness of exporters against other bags of economies actually did not drop that much. In fact, it did not drop, it even increased in terms of REER,” he added.

The peso has been moving within the 40-peso-level since the start of the year, stronger than the official P42-P45 assumption for 2013. On Tuesday though, the local unit dipped to 41.07 to a dollar, the weakest since Dec. 27.

The currency lost 23 centavos from its close of 40.83 Monday. Dollars traded amounted to $935.760 million, up from $664.944 million the previous day.

“There was a confluence of factors that affected the peso. First was the market reaction to the disappointing imports report released today (Tuesday),” a trader at a local bank said in a phone interview.

“There was also a strong demand for dollars due to the coming long weekend. It was also the end of the quarter and corporations need to settle in dollars,” he added.

Moving forward, the trader said market players would take a look at foreign economic indicators before making their bets on the peso.  Bailout negotiations in debt-ridden Cyprus will also be monitored.

“I guess the weakness (yesterday) also showed market players have actually seen the agreement on Cyprus as a bad precedent of the government asking banks to close shop for bailout,” he said.