Weaker peso not good for economy long-term

While favorable to exporters and overseas Filipinos, the steady depreciation of the peso may prove disadvantageous to the economy in the long run.

Cid Terosa, vice dean of the Economics Program at the University of Asia and the Pacific (UA&P), noted a stronger US dollar raises the peso value of remittances from Filipinos who live and work abroad.

The down side is that it makes the debts owed by the Philippines to foreign creditors more expensive to repay.

"The purchasing power of households receiving remittances will go up given the benign outlook," Terosa noted.

However, the continuous depreciation of the peso could also lead to foreign exchange losses especially when servicing foreign debt. It also makes the country's imports more expensive.

"Prices of imports will go up, but export prices will be lower," Terosa said. "The value of our foreign debt will move up," said Terosa.

John Paolo Rivera, program manager at the Asian Institute of Management (AIM), cited the same observations.

Not beneficial to trade

"The remittances being sent by overseas Filipinos are now worth more than before the currency depreciation. It will be beneficial to exporters and OFWs, because they earn more in terms of the peso value," he said.

"However, this will not be beneficial to trade because it becomes disadvantageous to importers who are able to buy foreign goods at a more expensive rate. Prices of imported goods in the Philippines will increase," Rivera added.

But from another point of view, the outlook seems to be that the depreciation is generally better for the country.

"Overall, it's good for the economy. A weaker US dollar/Philippine peso will improve country's competitiveness," Jonathan Ravelas, chief market strategist at BDO Unibank Inc. said in a separate text message.

"On remittances: it's supportive of the spending of OFW families, along with the low commodity prices. Low commodity prices offset USD/PHP weaknesses," Ravelas noted.

The peso fell to at P47.995:$1 last week, its lowest level in more than five years, owing to the oil price plunge below $30 a barrel.

"The last time it reached this low was in more than five years, when the USD-PHP rate averaged 48.139 for the month of September 2009," Cherica Vicente, foreign exchange analyst at MetisEtrade, said in an emailed commentary.

After the dollar recovered a bit late last week, the peso on Friday dropped 4 centavos to close against the US currency at P47.690:$1 from Friday's 47.650.  – VS, GMA News