‘PHL most vulnerable to a strong dollar’

The Philippine economy is emerging as the most vulnerable to currency volatility in the region due to the country’s reliance on two imported commodities—food and fuel.

In a recent research note, global think tank Oxford Economics said the Philippines will be hit hardest as the dollar continues to strengthen sharply against currencies in the region.

“Amongst ASEAN [Association of South East Asian Nation] economies, the Philippines is the most vulnerable to a weaker currency given it is the largest importer of food and energy and these goods account for around 44 percent of the consumer expenditure basket,” Oxford Economics lead economist Sian Fenner said.

The economist also noted that after the US reported a stronger than expected May inflation print, the Philippine peso has become the worst performing ASEAN currency, depreciating 6.2 percent against a very strong US dollar.

Data from the Bankers Association of the Philippines (BAP) showed that the local currency remained at the P56 territory this week, despite efforts from the Bangko Sentral ng Pilipinas (BSP) to calm the markets via an off cycle rate hike earlier this month.

The peso closed at P56.255 to a dollar on Tuesday, closing sideways from the P56.35 to a dollar close on Monday. The total traded volume during the month is at $663.05 million.

In a separate research analysis, credit watcher Moody’s Investors Service also flagged the Philippines as one of the “highly vulnerable” economies to food and fuel prices.

“A few APAC [Asia Pacific] countries are highly vulnerable to volatile food and energy prices. In particular, the Philippines, India, Thailand and Vietnam have high energy and food weights in their Consumer Price Index baskets,” says Deborah Tan, a Moody’s Assistant Vice President and Analyst.

“Food shocks could increase social discontent and trade protectionism, while policy responses to recent shocks will have long-term credit implications for sovereigns and some corporates,” Moody’s said.

The ratings agency urged vulnerable economies to adopt policies for subsidizing food and veer away from trade protectionism.

“Targeted subsidies to consumers can be effective in achieving growth and equity objectives, while agricultural subsidies to producers will play an important role in food security and political stability in agricultural employment,” Moody’s said.

In an interview with the BusinessMirror on Tuesday, BSP Monetary Board member Bruce Tolentino said they are still “closely monitoring” the local currency’s movements and vowed to be “data dependent” in their next monetary policy action.

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