Tuesday, October 30, 2007 Speak out: Rising peso By Trade union congress of the philippines
THE peso will likely soar to fresh multi-year highs versus the US dollar once the Federal Reserve—the American central bank—slashes its key rate by either one-fourth or one-half a percentage point this Wednesday.
The families of Filipino migrant workers have to cope with significantly reduced purchasing power due to the peso’s steady rise against the US currency.
The peso has gained 21 percent against the dollar since 2004, when the local currency averaged 56 to a greenback, implying that households relying on remittances have since lost as much buying power.
The Trade Union Congress of the Philippines (TUCP) is urging overseas Filipino workers (OFWs) to dump their dollars and hoard their savings in pesos. The greenback will likely fall to as low as P40 by year’s end should US interest rates drop some more.
The Federal Open Market Committee (FOMC) will meet today and tomorrow to decide what to do with its key rate. Wall Street analysts widely expect the FOMC to cut its key rate by at least one-fourth a percentage point, from 4.75 percent to 4.50 percent. But some analysts see the panel boldly cutting its rate by one-half a percentage point to 4.25 percent.
The FOMC last cut its benchmark rate by one-half a percentage point, from 5.25 percent to 4.75 percent on Sept. 18, in a bid to boost liquidity amid a worsening credit crunch that threatens to plunge the US economy into a recession.
The rate cut then triggered a sell-off in the US currency that saw the peso swiftly climbing to almost 44 to a dollar from 47. The peso closed at 44.06 to a dollar last Friday.
Lower US interest rates tend to drive investors to sell their dollars and dollar-denominated instruments in search of higher yields.
TUCP is supporting Sen. Loren Legarda’s push for lower money transfer charges. Legarda has been batting for reduced remittance fees, calling “excessive” the estimated $1.72 billion that OFWs spend every year on money transfer charges.
TUCP urged the state-owned Land Bank of the Philippines (LBP) and the Development Bank of the Philippines (DBP) to do their share in driving down remittance charges by competing fiercely with private banks.
Both the LBP and DBP should offer cheaper transfer charges, and endeavor to capture a bigger slice of the remittance market. We find it highly anomalous that, right now, four local private banks control about half of the annual inflow of remittances.
The Bank of the Philippine Islands, Metropolitan Bank and Trust Co., Banco de Oro-EPCI Inc. and Philippine National Bank each corner about $1-billion worth remittance inflows annually.
OFWs sent home through banks a record $9.3 billion in the eight months to August, up 15.3 percent versus the amount they remitted in the same period last year.
