Last 12 May 2000, the peso-dollar exchange rate stood at P41.47/US$1. This represented a 2.8 percent depreciation since the beginning of the year. We note that the movements of the peso-dollar rate are in line with movements of other currencies in the Asian region. As of last week, the Singapore dollar had declined by 3.6 percent, the rupiah by 17.5 percent and the Thai baht by 3.5 percent since the beginning of the year. The Australian dollar and the New Zealand dollar likewise depreciated by 11.9 percent and 8.3 percent, respectively.
The movements in regional currencies are a reaction to several factors, including the expected increase in U.S. interest rates and the consequent long dollar position of domestic portfolio managers and other asset holders. Favorable growth prospects for the Philippine economy and the other Asian economies have also led to increased import demand and, consequently, higher corporate demand for dollars, which contributed to the weakening of regional currencies.
The anticipated rise in U.S. interest rates has also translated into the weakening of the yen and the euro, which have depreciated by 5.7 percent and 8.8 percent, respectively, since the beginning of the year up to last Friday. The expected increase in U.S. rates is attributable to the record expansion of the U.S. economy, which has resulted in a tightening of the U.S. labor market, and has raised concerns about emerging inflationary pressures. The concerns were heightened by a report of a slowdown in non-farm productivity growth, and have led to a widely shared expectation that the U.S. Federal Open Market Committee could boost short-term rates by as much as 50 basis points when it meets on May 16.
The Bangko Sentral remains watchful of external developments and monitors closely whether the movements in the peso-dollar exchange rate are in line with market fundamentals.