The peso is skidding again and no one is paying attention anymore. That’s probably the only reasonable reaction because we can’t do anything about it anyway. The peso’s value against the dollar is largely dependent on the US Federal Reserve and how it moves on its interest rate policy. Because many fear the US has not licked inflation just yet, any relaxation of interest rates may not happen before the US elections in November.
So, the peso is bound to get weaker than its current 57.46 exchange rate vs the US dollar. Back in May 2021, the peso was trading at P47.95. Then it went as low as 58.82 in October 2022. Last week, it was reported that the BSP had been quietly propping up the peso after it breached the 57 level. But it was explained by BSP Governor Eli Remolona Jr. that “We were active in small amounts – not to affect the value but to maintain orderly markets… We all know this is a case of a strong dollar as many other currencies have also weakened. So not very strong grounds for significant intervention.”
The peso has fallen to 17-month lows in recent weeks and there are implications on our inflation because of our high dependence on imported food, notably rice. More than a fourth of the country’s foodstuffs are now imported to include chicken, pork, onions, beef, milk.
But because our OFWs are fueling our strong consumer-driven economy, their families back home will be getting more pesos for every dollar remitted. A good part of that will be spent to cover rising food prices.
As for the BPO industry, the other leg of our economy, the strong dollar is good news. A Bloomberg article noted that “The Philippine peso has weakened nearly four percent this year and emerged as Asia’s worst performer since the start of the second quarter. That’s burnished the appeal of the Southeast Asian nation as a cost-effective destination for business process outsourcing… placing the industry on course to become the nation’s top foreign exchange earner by 2026.”
BMI, a unit of Fitch Solutions, is forecasting “the Philippine peso to depreciate only by one percent against the US dollar, from an average of 55.63/USD in 2023 to 56.00/USD in 2024. It is a relatively stable outcome compared with a depreciation of 11 percent in 2022 and two percent in 2023.”
They also have “a positive outlook for consumer spending in the Philippines in 2024.” But cautioned that “the key risks to this outlook include prolonged inflation; decrease in remittances, which fluctuate as a result of external market conditions including depreciation of the peso; weakening of the domestic economy; and geo-political tensions in the Middle East (the Israel-Iran conflict) which can create oil price shocks that can result in higher overall inflation and potential rise in interest rates.”
BMI also noted that “consumer confidence in the Philippines remains sluggish, although there has been some upward momentum as the market continues to recover from the pandemic years, when consumer confidence sank to a low of -54.5. In Q1 2024 (latest data available), consumer confidence stood at -10.9 vs Q4 2023 reading of -19.0, which was the lowest reading since Q4 2021.”
BMI thinks foodgrain inflation will subside by the end of Q2 2024 as the El Niño weather pattern responsible for deficit supply will end by that time. But that may be unlikely since the Department of Agriculture has yet to implement reforms in the food logistics system now in the hands of traders who take advantage of problematic situations like what we have now.
How will our consumer driven economy react to all these? BMI thinks that “consumers still need to get acclimatized to higher than usual inflation in the short term. Additionally, if nominal income growth doesn’t keep pace with inflation, purchasing power of consumers will deteriorate which would be a drag to their spending. Prolonged inflation, particularly in foodgrains, will mean that consumers will have to increasingly allocate more of their disposable income toward meeting basic necessities…Risks to our consumer spending forecasts stem from the possibility that inflation remains elevated for longer than we currently forecast, potentially eroding purchasing power…”
In other words, BMI is optimistic but very cautiously so.
Goodbye Sofitel Philippine Plaza
My wife won a gift certificate for an overnight stay at Sofitel Philippine Plaza during a raffle at their STC high school homecoming. The gift certificate was expiring in a week so we checked-in last Thursday. Little did I know it was the hotel that was expiring. I saw the news as soon as I switched on the hotel WiFi on my iPhone. Apparently, my son who was on a business trip in NYC read that too, especially the part about the hotel’s structural damage and told my grandson. When we called my grandson in Singapore, he was worried about the danger to us being there.
My friend Stella Arnaldo of Business Mirror went beyond the press release to tell us the hotel’s closure is a business decision after failing to get a lease extension. The hotel owners apparently want to do a major rehab to, among others, fix the structural problem in the over 50-year-old hotel that was constructed in a hurry on freshly reclaimed land by Imelda. But they want a longer period for the lease, beyond the 17 years remaining, to recoup an estimated P8.6-billion rehab cost. They have to close down now for safety reasons as they experienced bursting water pipes, gas leaks and other problems.
So, what will GSIS do with an empty hotel that has lost value after Sofitel leaves? The hotel looked fully booked during our stay. So many people at the pool area and the breakfast buffet. We experienced excellent service from the staff. Other hotels should start hiring them now.
Boo Chanco’s email address is bchanco@gmail.com. Follow him on X @boochanco