GCQ return keeps peso at near four-year high

The Philippine peso sustained its strength on Wednesday on the back of the return of a general community quarantine (GCQ) in Metro Manila and four neighboring provinces, and on still-subdued economic activities, according to analysts.

Opening at P48.61:$1, the local currency gained 5 centavos to close at P48.57:$1, its strongest since its P48.48:$1 close on Nov. 4, 2016.

Rizal Commercial Banking Corp. chief economist Michael Ricafort attributed the peso’s movement to the “continued positive reaction” to the National Capital Region and the provinces of Bulacan, Cavite, Laguna and Rizal going back under the less restrictive GCQ starting on Wednesday.

The relaxed lockdown “helps improve economic recovery prospects and valuations,” he said, adding that the local unit’s strength could also be traced to the continued weakness of the US dollar against major global currencies.

The greenback plunged to its lowest levels in more than two years on less demand for it “as a safe haven in view of the improvement in global market risk appetite, as manifested by the new record highs in most US stock markets (after strong US housing and building permits data) and the gains in other stock markets around the world, as well as near record-low US interest rates/bond yields near zero percent, which reduce the attractiveness/allure of the US dollar with low interest-rate returns vis-a-vis other global interest rates/bond yields,” Ricafort explained.

ING Bank Manila senior economist Nicholas Antonio Mapa said the peso’s performance improved on fading demand for foreign currency amid stalling imports, which is “pointing to declining potential output and slower economic growth in the next few months.”

“The movement of the currency reflects the return to periods of current account surplus as inflows (from remittances and exports) outpace imports,” he added.

Latest data from the Bangko Sentral ng Pilipinas showed that the current account — a major component of the country’s balance of payments — posted a $92-million surplus in the first quarter of 2020, a reversal of the $1.68-billion deficit in the same period last year.

The current account consists of transactions in goods, services, primary income and secondary income. It measures the net transfer of real resources between the domestic economy and the rest of the world.

In an economic bulletin on Wednesday, the Department of Finance said allowing the exchange rate to keep its competitive level, maintaining good fundamentals by keeping both the budget deficit and balance of payments manageable, keeping interest rates at the level that sustains investments, and keeping inflation at the lower end of the inflation target “will allow the country to recover promptly as the lockdowns set up to battle the pandemic are eased.“

The government has a peso-dollar exchange rate assumption of P50 to 52 this year, a revision of its previous P50-to-P54 assumption.

Last year, the peso ended at P50.63 against the dollar, a 3.70-percent appreciation from P52.58:$1 on Dec. 28, 2018, and fell below the government’s P51-to-52:$1 exchange rate assumption for the year.

Source: TheManila Times