THE PHILIPPINE economy at the moment will be better off with a weaker peso as depreciation of the local currency will help encourage spending among dependents of overseas Filipino workers.
According to Victor Abola, senior economist at the University of Asia and the Pacific, the Bangko Sentral ng Pilipinas should also help in lowering the peso?s exchange rate if it wanted to further boost consumption.
While depreciation of the peso usually accelerates the increase in prices of commodities, the impact of a weakening local currency on inflation can be minimal, Abola said. Because of this, the BSP can allow the peso to depreciate further and still keep inflation within official targets.
The government expects inflation to range between 2.5 and 4.5 percent this year. For 2010, inflation is seen to range between 3.5 and 5.5 percent.
Latest government data showed that average inflation for the first nine months of the year stood at 3.4 percent.
?Depreciation of the peso only has a small impact on inflation. Even estimates by the BSP confirmed this. For every 10-percent peso depreciation, inflation increases by only 0.3 percent,? Abola said.
He said the economy needed a weaker peso to increase the purchasing power of millions of Filipinos partly or fully dependent on remittances.
Personal consumption accounts for about 70 percent of the country?s economy, Abola noted.
The peso weakened to the 47-to-a-dollar territory this week after hitting the 46:$1 mark the previous weeks. Market traders said the BSP would intervene in the market if the peso were to post sharp, sudden turns.
Sharp volatility of the currency makes it difficult for businessmen, especially those engaged in exports and imports, and even consumers dependent on foreign exchange remittances to plan their budgets.
But Abola said that, at the moment, a weaker peso should be allowed. The peso should depreciate to a level that must not exceed inflation targets.