The Philippine peso closed stronger at P49.19 to the United States dollar on Tuesday, July 28, the strongest in more than 3 and a half years. Its strength, however, may be due to the weak global economy.

The peso gained for the 5th consecutive day and is at its strongest since November 15, 2016, when it closed at P49.17.

Rizal Commercial Banking Corporation chief economist Michael Ricafort enumerated the following as some global developments behind the strengthening of the peso:

• Lingering weakness of the US dollar against major global currencies to the lowest in more than 2 years, amid relatively low US interest rates
• Increased US-China tensions
• Less demand for safe havens such as the US dollar amid improved global market risk appetite, especially amid developments on possible COVID-19 vaccines
• Spike in new COVID-19 cases in some US states that could be a drag on US economic recovery

The peso also gained ahead of the US Federal Reserve monetary policy-setting meeting, with possible dovish signals from the Fed.

Is the strong peso good or bad for Filipinos?

ING Bank Manila senior economist Nicholas Mapa said in an earlier virtual briefing that the peso’s strength is a symptom of a weak economy.

“I’d say it’s more of a symptom. I wouldn’t say it’s bad for us or good for us, there are always winners and losers to that argument, but it’s a symptom really of what’s happening in the economy,” he said.

“It isn’t a good thing, as it points to a not so rosy outlook. There’s not a lot of corporate demand for the dollar and that’s reflected in your import implosion.”

Trade activity has gone down since the country imposed strict lockdowns due to the coronavirus pandemic.

Total external trade in goods in May, which amounted to $9.8 billion, declined at an annual rate of 38.7%, lower than April’s annual drop of 59.5%, according to the Philippine Statistics Authority.

Total export sales in May plunged by 35.6%, while imports fell 40.6%.

“Nobody is buying imports anymore because nobody expects to rebound [anytime soon]. People are cutting back and this is across the board,” Mapa said.

Moreover, while the strong peso may mean that the Philippines can purchase imports at a more attractive rate, it may also mean that the country’s exports would not be enticing for other countries.

Also, Filipino families relying on overseas remittances will get less due to the peso’s strength.

Ricafort, however, noted that the appreciation came as President Rodrigo Duterte’s 5th State of the Nation Address “provided some reassurance,” particularly on the mentions of some economic bills and push for infrastructure projects.

Other analysts, however, noted that the speech lacked detail on plans to revive the economy from the pandemic. – Rappler.com