Peso loses 6% in 2021


Lawrence Agcaoili – The Filipino Star

January 2, 2022 | 00h00

MANILA, Philippines – After becoming one of the region’s best-performing currencies in 2020, the peso depreciated near the $ 51-1 level in 2021 amid strong Philippine demand for the dollar as the economy is gradually recovering from the impact of the pandemic.

Michael Ricafort, Chief Economist at Rizal Commercial Banking Corp. (RCBC), said the peso weakened by P2.976, or 6.2%, to close at 50.999 at the end of 2021, going from 48.023 to $ 1 at the end of 2020.

From the 4.5-year intraday high of 47.61 on June 1, 2021, the peso depreciated 3.39P, or 7.1% in over six months due to the reopening of the economy following strict COVID-19 lockdowns, resulting in increased import demand.

The peso ended 2021 on a stronger note, closing $ 50.999-1 on the last trading day of 2021, rising from $ 51 to $ 1 on Wednesday – the peso’s weakest since closing at $ 51.07-1 March 26, 2020.

Ricafort said monthly imports and trade deficit data have already returned to pre-COVID levels on a monthly basis despite the emergence of the new Omicron variant.

The latest data from the Philippine Statistics Authority (PSA) showed the country’s trade deficit increased 66% to $ 33.21 billion from January to October 2021, from $ 20 billion during the same period in 2020.

This, after imports rose 29.7% to $ 95.31 billion in the 10-month period of 2021 from $ 73.48 billion a year ago, while exports increased by 16.1% to $ 62.1 billion against $ 53.48 billion.

Ricafort said the strengthening of the peso against the dollar was offset by some recovery in the economy as well as imports given the expected acceleration of COVID vaccinations in the coming months, which could help better manage the new local cases and, in turn, will ultimately help to justify the further reopening of the economy.

Ricafort said revenue from export sales likely increased in the fourth quarter of 2021.

As seen consistently for many years, Ricafort said the peso appreciated with the widely expected increase in Filipino Workers Abroad (OFW) remittances as well as the conversion into pesos, especially during the Christmas and New Year holiday season.

OFW’s personal remittances rose 5.4% to $ 28.82 billion from January through October, from a level of $ 27.35 billion a year ago, as cash remittances flowed through by banks increasing 5.6% to $ 23.12 billion, from $ 21.89 billion.

Likewise, net inflows of foreign direct investment (FDI) jumped 43.8 percent to $ 7.29 billion in the first three quarters of 2021, from $ 5.02 billion in the same period. in 2020.

Ricafort said the next big hurdle against further upside potential is the levels of 51 to 51.50 per $ 1 seen at the start of the pandemic.

“The overall economy is still below pre-COVID levels for now, reflecting a relatively slower recovery in some import activity, given the lockdowns at the start of the year and last year.

Security Bank chief economist Robert Dan Roces said the local currency could weaken further to $ 52 to $ 1 amid rising demand for the dollar as the economy continues to reopen.

Roces said pain points to watch for 2022 include the presidential and national elections in May, the series of interest rate hikes by the U.S. Fed, the country’s widening trade deficit as well as rising global prices for goods. raw materials.

“Currency exchange space is very difficult to predict. We didn’t expect him to hit all 49 levels again this late in the game, but he did. So, next year, with the Fed rising, we might expect a stronger response from the dollar. So that means the peso is also weakening, ”Roces said.

According to Roces, the export sector could show faster growth of 8% next year compared to the 7% forecast this year, but the sector could still be affected by high shipping costs and chain constraints. supply.

Likewise, he said, China faces slower growth, potentially affecting external demand for products made in the Philippines, including agricultural exports, thereby suppressing the potential for export growth.

On the flip side, Roces said imports could see double-digit growth next year from the nine percent forecast this year due to rebounding domestic demand.

However, Roces warned that the country still faces high commodity prices due to surging global demand, leading to further inflationary pressures.

“Importers will have to meet demand, so they’re probably going to be looking for more dollars to fund their operations, of course they’re going to source it locally. So there is going to be a higher local demand for dollars and that indicates the depreciation of the peso, ”Roces said.

According to Roces, oil prices are expected to remain high next year, as demand could exceed pre-pandemic level on a gradual path.

ANZ Research said the peso weakened in 2021 as the country’s current account position turned unfavorable due to high import bills.

“The improvement in remittances was also insufficient to offset the increase in the trade deficit. The evolution of its external position will be the key to the performance of the peso in 2022. Rising domestic demand, high oil prices and an increase in infrastructure spending will further increase imports, ”ANZ said in its report on the economic outlook for the first quarter of 2022.

ANZ expects the peso to strengthen to $ 49.90 to $ 1 in 2022 and to $ 49.50 to $ 1 in 2023 after weakening against the dollar in 2021 as the increase in remittances OFW as well as higher revenues from the Business Process Outsourcing industry would help support the current account in 2022.


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