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Q and A on the Exchange Rate Impact: How Much, What We Can Do, and What's Next

03.05.2008

In general, a firm currency is welcome news as it reflects positive developments in the country’s economic fundamentals, 

In 2007, as the Philippine economy grew at its fastest rate in 31 years, the Philippine peso emerged as one of the top performing currencies in Asia and hit a 7 ½-year high of P41/US$1  in December 2007.    

For Filipino consumers, a firmer peso meant lower prices in peso terms for imported goods and services. For instance, a stronger peso shielded the Philippines from the full impact of record high world oil prices. Based on our estimates, prices of oil products would have been higher by about P2.00 per liter if the peso had not appreciated against the US dollar. This would have raised transport fares and consequently food prices as well for Filipino consumers.      

On the other hand, for sectors whose earnings are denominated in US dollars, a firmer peso is not a positive development. This includes exporters as well as overseas Filipinos and their dependents who now receive less pesos for every dollar they exchange. 
     
Given this, discussions have been divided on whether a firm peso is ultimately a positive or a negative for our country. 

It is in this context that we saw the need for this series of  Questions & Answers. We hope that through this, we are able to promote better understanding of issues related to exchange rate developments and the government’s policy responses to these issues.

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