The Philippine peso delivered a strong performance against the US dollar in the first half of 2019, outperforming all but one of the top currencies in Southeast Asia. The peso racked up an appreciation of 2.82% against the dollar, a figure only surpassed by the Thai baht.
In an Economic Bulletin released on August 5, the Department of Finance (DOF) attributed this performance to a strong balance-of-payments position (BOP). The DOF noted in the Bulletin that the BOP surplus of US$4.79 billion at the end of June 2019 marked the highest level since 2012.
The Gross International Reserves (GIR), the sum of all foreign exchange inflows, has similarly continued to rise, reaching a figure of US$85.77 billion at the end of June. That is 10.4% higher than the comparable figure from 2018.
Benjamin Diokno, governor of the Bangko Sentral ng Pilipinas (BSP), stated that the continued growth of the GIR was driven by income generated by the bank’s overseas investments, with the BSP developing a substantial foreign exchange buffer.
The BSP is responsible for determining the exchange rate policy of the peso, which makes the part it plays in the forex industry one of substantial importance. If BSP analysts feel that the peso is appreciating or depreciating too dramatically against the US dollar, the GIR buffer will come into play.
Given the bank’s responsibility for managing the stability of the Philippine economy, BSP officials will be closely monitoring any developments in the protracted US-China trade dispute. The peso's previous strong currency performance indicated an ability to withstand much of the regional pressures created by the US-China trade dispute.
However, recent evidence suggests that the Philippine peso may lose some of its gains against the dollar in the short term. On August 28, the peso depreciated by 6.1 centavos against the dollar, closing play at P52.321:US$1. Reports that Chinese officials have become increasingly doubtful of a successful trade resolution will affect even the strongest currencies in Southeast Asia.
That includes the Thai baht, which appreciated by 4.27% against the dollar from January to July in 2019. The Thai baht has consistently made gains against the US dollar in the past two years, although its growth has raised concerns for the future of Thailand’s export-driven economy.
One silver lining to the US-China tensions could be an alleviation of those concerns about the export industry, as Asian currencies lose value. Cid Terosa told GMA News Online that the peso is less susceptible to “wild currency fluctuations”, with the economics expert deeming this a result of “relatively strong macroeconomic fundamentals and lesser engagement in global value chains”.
The Philippines’ DOF credited the reliability of foreign exchange inflows, in part generated by direct investments from abroad and a robust export industry, as developing the strong BOP position. Government officials will be hopeful that this will enable the Philippine peso to ride out the storm of a US-China stand-off that has entered its second year.
The DOF and the BSP will be confident that the past stability of the peso-dollar exchange rate will stand the currency in good stead for what lies ahead, with the peso ranked 6th for stability out of 12 regional currencies in the first half of 2019.