The Monetary Board, in its meeting on 30 June 2000, approved the release of data on the Nominal Effective Exchange Rate (NEER) index on a daily basis. The NEER index will be posted in the BSP’s website and daily press releases along with the nominal exchange rate, which is more commonly known as the peso-dollar rate.
The NEER index is a weighted average exchange rate of the peso vis-à-vis a basket of foreign currencies. This basket includes the currencies of the Philippines’ major trading partners: the U.S. dollar, the Japanese yen, the Deutsche mark, and the British pound. The weights are based on each trading partner’s trade (i.e., exports plus imports) share.
The NEER is a useful indicator of external competitiveness, complementing the peso-dollar exchange rate. It is a more comprehensive measure compared with the peso-dollar rate because it takes into account changes in the value of the peso not only with respect to the U.S. dollar, but also with respect to the Philippines’ other major trading partners. Moreover, data on the NEER index are also available on a daily basis.
External competitiveness may be assessed by comparing the prices of goods and services in the Philippines with those in other countries, specifically its trading partners. The Philippines is said to be more competitive if it offers lower prices for the same goods and services compared with its trading partners. To the extent that the value of the peso affects prices, it may serve as a measure of external competitiveness.
In the first seven months of the year, the NEER has been on a trend decline, from 16.11 index points in January to 14.98 index points in July. This reflects an improvement in the Philippines’ external competitiveness. The release of the NEER index to the public is consistent with the BSP’s efforts in preparation for its shift in 2001 to inflation targeting as the framework for monetary policy. Inflation targeting—which is information-intensive— considers a broader set of indicators in assessing the appropriate monetary policy stance.
Statistical exercises done by the BSP also show that the movements in the inflation rate are explained more significantly by the NEER index than the peso-dollar rate.