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Trouble for Peso

by Seerat Fayaz   ·  October 6, 2021   ·  

Trouble for Peso

by Seerat Fayaz   ·  October 6, 2021   ·  
The currency of the Philippines, the Peso, has dropped yet again. This is the lowest the currency has gone in the last 17 months. The reason behind this problem faced by the country is the falling rate of real returns and the oil crisis that is prevailing all over the world.

The country is also suffering from the problem of constant exit of the assets from the country. All these problems have converged, resulting in a weaker currency.

The depreciation in the value of the currency is somewhat seen as desirable by the policymakers of the country and even the central bank has approved the downfall in the rate of the peso against the dollar. One clear reason for that is to enhance the exports of the country, as the goods will become cheaper, and be more competitive against other countries in the market. This will make the demand rise and consequently, will help the country dealing with the trade deficit.

Another reason behind this huge drop is the rising rate of inflation in the country. The CPI of the country has accelerated from 4.8 percent to 5.6 percent in the past month. Consumer-price growth is a way of measuring inflation in the country. Rising oil prices and the pressure of recovery from the pandemic are some of the reasons behind the increased rate of inflation.

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The Philippines is one of the countries that import oil to fulfill their energy needs and the current situation is quite hard for all oil-importing countries right now.

Since the prices are rising at a very alarming rate in the country, the future or real yields of the country may reflect the changes.

On analyzing the current scenario of the currency’s rate against the dollar, it is evident that the currency had already reached the support level when it hit the rate of 50.67 in August. Peso is expected to fall to around 53 in the coming months, a key Fibonacci level.

The price of the dollar is also rising due to the possible rate increases in the near future by the FED. The Peso was making some great advances against the dollar in the past year but the latest happenings are in the favor of the US dollar. If the Oil price keeps its upwards trajectory, and FED raises the short-term interest rates, near term future of the Peso is not looking very promising.

On Monday, Felipe Medalla, a Philippine economist and the next governor of the country’s central bank, stated his intention to keep hiking interest rates gradually beyond August. To combat inflation, monetary authorities from India to the US have increased interest rates more significantly.

According to Bloomberg, eight of the 25 economists it polled were already asking for a 50 basis point rise at the meeting on Thursday. According to Bloomberg, the majority wanted a 25 basis point increase.

The Philippine Statistics Authority published a report on Thursday stating that the nation’s unemployment rate jumped to 6 percent in May 2022 from 5.7 percent in April of this year by 0.3 percentage point. The study was based on data collected across the country. As a direct consequence of this, the number of people without jobs rose to 2.93 million in May, up from 2.76 million the previous month.

On the other hand, as compared to the same month one year before, the growth of the manufacturing sector was lower in May 2022. The increase in the value of production index dropped to 7.6 percent from 256.1 percent in May 2021, while the rise in the volume of production index fell to 1.9 percent from 267.2 percent a year earlier. Both of these figures were reported for May 2021.

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