Uncertainty over next admin weakens peso

The uncertainty over an impending change in national leadership is largely responsible for weakening the peso against the dollar, analysts said on Wednesday.

Their comments come less than two weeks before the May 9 election.

“The Philippine peso usually experiences high volatility in the months leading to the election. The large movement of the peso can be attributed to the uncertainties involved in selecting new government officials,” said Cherica Vicente, research analyst at MetisEtrade.

So far this month, the local currency lost as much as 64.5 centavos or 1.39 percent at P46.780:$1 from 46.135 on April 1.

“During this period, what primarily affects currency movement boils down to one thing – investor confidence, or lack thereof,” Vicente said.

“The overall attitude of investors towards the local economy can greatly influence currency prices. If investors and businesses are optimistic that the policies and reforms of new government officials support their interests, they will put more money into the economy, therefore, pushing the local currency to appreciate,” she added.

PHL share prices soften

Separately, the stock market seems to have been rankled by current political developments.

Philippine shares closed on a soft note Wednesday, as election concerns start to weigh on investor sentiment.

Lexter Azurin, head of research at Unicapital Securities Inc, noted the market was mainly reacting to the political wrangling as May 9 draws near.

But Josef Paulo Reyes, foreign exchange trader at the Development Bank of the Philippines (DBP), noted it's primarily the absence of certainty that's moving the market.

“I don’t think it is because of one man, I think what the market fears is uncertainty – uncertainty which is brought about by unclear economic plans and discontinuity of current systems,” he said.

Reyes was referring to the current leading presidential candidate, Davao City Mayor Rodrigo Duterte, who has been reported to have caused uncertainties in the foreign exchange market.

Downside risks to change

On Wednesday, questions were raised on the economic reform policies under a potential Duterte administration. The presidential hopeful has led the pre-election polls as revealed in the latest Pulse Asia survey.

Duterte garnered 34 percent of the respondents, followed by Senator Grace Poe at 22 percent, Vice President Jejomar Binay (19 percent), former Interior and Local Government Secretary Manuel “Mar” Roxas (18 percent), and Senator Miriam Defensor-Santiago (2 percent).

“Among the five presidential candidates in the 2016 Philippine general elections, stakeholders are most likely more comfortable with a president that prioritizes economic development and investor relations,” MetisEtrade’s Vicente said.

She noted, however, that there are certain downside risks to a change in national leadership.

“The local peso could be weighed down by the fears that the individual who is about to hold public office will not concentrate on creating an encouraging environment for investors and businesses,” she added.

Economists noted the peso has been depreciating mainly on speculations and uncertainties.

“The Philippine peso depreciation may be due to the performance of the domestic economy, external economy, financial markets,” said John Paolo Rivera, program manager at the Asian Institute of Management (AIM).

Rivera noted the negative impact of any particular candidate vying for the presidency is purely speculative.

“For me it’s just speculation... Releasing statements like that affects the market, given that expectations are formed about who will win and how the winner will manage the economy and the financial markets,” he added.

University of Asia and the Pacific (UA&P) Economic Program Vice Dean Cid Terosa noted there is no single factor at this point affecting peso-dollar exchange rate.

“The depreciating peso can be traced to multiple factors,” he said. – VDS, GMA News