DOF ECONOMIC BULLETIN ON EXCHANGE RATES
The Philippine peso is moving in tandem with global currencies in the ongoing turbulence in financial markets arising from the intensifying trade war, the rise in US interest rates, and the shift in European Central Bank monetary stance as it is about to end quantitative easing.

Year-to-date depreciation of 13 major Asian currencies averaged 2.66%. The most depreciated currencies are issued by the fastest growing and most competitive countries. Since January, the Indian rupee depreciated by 7.46%, Philippine peso by 7.42%, Korean won by 5.13% and Indonesian rupiah by 4.97%. Note that in the first quarter of 2018, GDP growth in India was 7.7%; in the Philippines, 6.8%; and Indonesia, 5.1%. These are among the highest economic growth rates in the world.

Month-to-date depreciation of 13 major Asian currencies averaged 1.76%. The month of June is when the trade war intensified into a barrage of tit-for-tat tariff increases against major trading nations/blocs. The most depreciated currencies are Korean won at 5.13%, Chinese yuan at 2.9%, Thai baht at 2.88% and Singapore dollar at 1.93%. This is followed by the Philippine peso at 1.73% and Indian rupee at 1.68%. The most affected countries are the direct victims of the exchange of tariff increases. The Philippines and India are relatively less affected because exports of goods account for a smaller percentage of their economies but their financial markets continue to ride with the whirlwind.

DOF View

Exchange rate movements---whether depreciation or appreciation---should not be taken as a sign of structural weakness in the economy. In an environment of global uncertainty where domestic macroeconomic fundamentals are sound ---real GDP growth is higher than 6%, inflation is within the neighborhood of projected levels, gross international reserves are in excess of 8 months of imports of goods and services, BOP and fiscal deficits are financeable and the debt ratios are declining--- the exchange rate should move flexibly so that economic players are able to adjust promptly to market dynamics, thus sustaining economic growth.