President Marcos' chief economic manager expects further appreciation of the peso against the US dollar, driven by increased remittance inflows during the upcoming holiday season.
In a briefing on Tuesday, Sept. 24, Finance Secretary Ralph G. Recto explained that the local currency typically strengthens against the dollar toward the end of the year as overseas Filipinos send more money home for the holidays.
He noted that this "seasonal" appreciation of the peso, while unfavorable for exporters and overseas workers, would positively impact the cost of imported goods.
“It's a seasonal trend; the peso strengthens during Christmas. I think we’ll see it drop to the lower 55s, which means we will save on our imports,” Recto told reporters.
The peso opened weaker on Tuesday, trading at P56.05 to P56.255 compared to Monday's closing rate of P55.97.
The peso has already begun to appreciate against the dollar as the US Federal Reserve initiated its monetary policy easing cycle with a 50 basis point rate cut last week.
Domestically, the Monetary Board (MB) has also embarked on its own monetary easing cycle, which is expected to continue.
As a member of the Bangko Sentral ng Pilipinas (BSP) MB, Recto indicated that the central bank's highest policy-making body may consider further reducing its key policy rates during its upcoming meeting in October.
In August, the BSP cut key interest rates by 25 basis points, marking its first such action since November 2020.
Recto suggested that the BSP might match the US Fed's 50 basis point cut next month.
The MB has two remaining rate-setting meetings this year, scheduled for Oct. 17 and Dec. 19.
In addition to interest rate cuts, which typically take time to influence the economy, the BSP has reduced banks' reserve requirement ratio by 250 basis points, releasing approximately P380 billion into the Philippine economy.
Recto assured that this substantial increase in liquidity would not trigger inflation.
“We considered this when we decided on the policy at the BSP meeting,” he said when asked about the potential inflationary impact of the reserve requirement cut.
“This will be beneficial for the economy, enhancing the capital markets. We're injecting roughly P380 billion into the system, which will be advantageous for banks,” the finance chief added.
He noted that the effects of the reserve requirement cut are more immediate compared to those of the policy rate reduction.
The Marcos administration aims for inflation to fall within its target range of 2.0 percent to 4.0 percent this year. At end-August, inflation averaged 3.6 percent.
Recto projected that inflation would slow in September to around 2.5 percent, down from 3.3 percent the previous month.
“For September, we expect it to be roughly 2.5 percent, within a range of 2.5 percent to 2.9 percent, with the midpoint being approximately 2.5 percent,” Recto stated.
He also noted that inflation tends to be seasonal, predicting a slight increase in the fourth quarter but still within the range of 3.1 percent to 3.9 percent. Based on current models, he projected inflation for next year to be between 2.9 and 3.1 percent.
Government measures to combat food inflation
Meanwhile, Recto emphasized that government actions, such as tariff reductions on rice, are beginning to lower inflation, with further decreases expected in the coming months, ideally aligning with the holiday season.
“Tamang-tama pagdating ng Pasko, medyo mas mababa na siguro ang presyo ng bigas. [It's ideal that when Christmas comes, the price of rice will probably be a little lower].”
Department of Agriculture (DA) Secretary Francisco Tiu-Laurel said that rice prices are expected to decrease by P5 to P7 by January 2025, with initial reductions starting in mid-October due to lower duties and decreasing global prices.
While the government recognizes the need to review the 15-percent rice tariff, any adjustments will depend on the supply situation, emphasizing that increased production and adequate resources for agriculture are necessary before considering tariff reductions, Recto said.
“Kulang ba ang suplay natin? Kung kulang ang suplay kailangan mong mag-import. There is no way around that, ‘di ba? So, it will take time for us to increase our production [...] Having said that, there should be adequate resources for the agriculture department. To increase the production will probably take at least two years,” he added.
Meanwhile, Tiu-Laurel forecasted that while pork prices may rise slightly during the holiday season due to increased demand, the ongoing Asian Swine Flu (ASF) situation and farmers' desire to sell their stock before vaccination will help prevent significant price hikes.
The President is closely monitoring food inflation weekly and is working on strategies to stabilize and reduce prices through investments in post-harvest facilities and processing systems, Tiu-Laurel said.
He emphasized the importance of expediting the ASF vaccine rollout to boost farmer confidence and encourage investment in hog farming, aiming to increase the pig population from 7.5 million to 14 million heads by next year.
“Kapag may confidence na ang mga magbababoy sa vaccine na ito, then they will start investing again in farms, pati iyong mga commercials natin at magre-repopulate,” he said.
According to the agriculture chief, the vaccination against ASF will complete the initial 10,000 doses by month-end, with the next 450,000 doses set for award on Oct. 10, aiming to procure a total of 600,000 doses by year-end. (Derco Rosal)