‘Peso weakening not totally unexpected’

MANILA, Philippines - Markets should not be alarmed over the peso’s recent weakening as this has been widely anticipated following the US Federal Reserve  decision to reduce its monthly asset purchases, the central bank said.

“The weakening of the peso is not totally unexpected, just like the weakening of other regional currencies,” Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco Jr. told reporters during the annual reception for bankers held at the central bank Friday night.

“There remains uncertainty about the speed and the duration of the Fed taper that is causing market volatility... As a result, there has been some global portfolio rebalancing that has led to the weakening of regional currencies as well as emerging market currencies in general,” he said.

The peso last week fell to a more than three-year low as recent favorable US economic data propped up the greenback. The local currency finished at 45.12:$1, its weakest level after closing at 45.13:$1 on Aug. 26, 2010.

The peso retreated back to the 45-per-dollar bank level last Jan. 15 due largely to market’s reaction to the Fed’s scaling back of stimulus.

The US Fed in December finally announced it would implement a modest $10-billion cut in its monthly asset purchases to $75 billion and further reductions on the program, depending on continued economic growth.

The massive bond purchases was introduced in 2008 to revive the slumping US economy. The announcement in December came following upbeat US jobs data and following indicators that the US economic growth has been gaining traction.

Tetangco said the peso will continue to be supported by the country’s strong macroeconomic fundamentals such as the manageable inflation which averaged three percent last year and the faster-than-expected economic growth which stood at 7.4 percent as of September last year.

“The macrofundamentals of the Philippines remain sound and the external liquidity position remains healthy. In fact, we’re projecting another BOP (balance of payments) surplus this year... that also gives us useful buffer against external shocks,” Tetangco said.

The BOP is summary of a country’s transactions with the rest of the world. Asurplus means more money came into the economy, while a deficit means otherwise.

Tetangco said the peso will remain market-determined but the BSP stands ready to smooth out any excessive volatility in the market.

The peso’s over 10 percent depreciation against the dollar is not only a boon to overseas Filipino workers (OFWs) and their families here, but will also enable the booming business process outsourcing (BPO) industry to produce more jobs at a faster rate in the months ahead, an administration lawmaker said.

House Assistant Majority Leader and Cebu Rep. Gerald Anthony Gullas Jr. said a significantly weaker peso means that BPO firms stand to receive more pesos to spend for every dollar that they earn, just like OFWs.

The peso closed at 45.00 to a dollar on Friday, its lowest level in more than three years. The local currency is now down 10.48 percent compared to its monthly average of P40.73 to a dollar in January 2013.

“Like exporters, BPO firms here get paid in dollars by their corporate clients overseas, but spend in pesos for their Philippine operations, such as the wages of their staff and office rent,” Gullas said.

“On account of the peso’s depreciation versus the US currency, BPO players here now have greater peso spending power that they may use to expand their business and hire extra staff,” he said.

The lawmaker estimated that BPO companies, on average, create one full-time job for every $10,000 they spend to enlarge their highly labor-intensive, information technology (IT) enabled business support activities.

Gullas is author of a bill that seeks to reinforce the English proficiency of the nation’s future labor force participants by reinstating the world’s working language and language of technology as the medium of instruction in all school levels.

He said the large supply of college-educated, fluent English-speaking professionals has been a key growth driver of the BPO sector, which is projected to fully employ some 1.3 million Filipinos and generate up to $27 billion in annual revenues by 2016.

Cebu is an outsourcing hub that now has 25 fully functional IT parks, plus 12 more being developed, providing plenty of office spaces and advanced connectivity to new BPO firms.

 â€“ With Paolo Romero