Strong peso keeps inflation down – Central Bank exec

By Cris Evert Lato
Cebu Daily News
Last updated 04:05pm (Mla time) 07/18/2007

Cebu, Philippines – Exporters and overseas Filipino workers (OFWS) may be hurting from the strong peso but they will also benefit with the low inflation rate brought about by the peso’s appreciation against the dollar.


This was the statement of BSP deputy governor Diwa Guinigundo on Tuesday during the BSP Business Environment Survey (BES) awarding ceremony at the BSP Cebu regional office.


“Peso appreciation also helps government debt service, resulting to more resources and spending on social services and more importantly, building of infrastructure,” he said.


“If the peso did not strengthen, we should be seeing higher inflation rate of five to six percent,” he added.


Inflation refers to the rate of change in the average prices of goods and services typically purchased by consumers.


“The continued downtrend in inflation is supported by generally stable prices for major food items, the strengthening of the peso and the subsiding base effects of the Reformed Value Added Tax (RVAT) on consumer price index (CPI),” BSP’s 2007 first quarter inflation report show.


CPI represents the average price of standard basket of goods and services consumed by a typical Filipino family in a given period.


The standard basket consists of consumption items including food production, clothing, water and electricity whose price movements are monitored to determine the change in CPI or the level of inflation.


To aid exporters and OFWs who are affected with the peso appreciation, Guinigundo said, BSP has set aside P50 million for capacity-building of exporters by helping them find the right market and/or develop the right product.


OFWs, on the other hand, are assisted with their economic and financing literacy campaigns which encourage them to become entrepreneurs and financial investors.


Guinigundo also said that exporters need to realize that “we cannot compete with India and China in terms of mass production.”


“Focus on niche markets,” he said adding that the success of European countries who followed this market direction should be emulated.


In an earlier forum, Joseph Pangilinan, project consultant of the Private Enterprise Accelerated Resource Linkages (PEARL 2) of the Canadian International Development Agency (CIDA) advised furniture exporters to focus on specific markets.


Guinigundo said the imposition of the value added tax (VAT) and later on, the two-percentage point VAT increase in the previous years paved the way for economic development.
“These measures signify that the Philippine government is capable of putting painful but important fiscal reforms,” he said.


In a speech during their 14th year anniversary celebration, BSP governor Amando M. Tetangco Jr. said that they enhanced their “capacity to analyze information, increased transparency in markets and aligned policy framework with international norms.”


“In fact, even as oil prices reached record high levels, we managed to tame inflation at low and stable rates,” he said.


In June 2005, inflation rate was at 7.6 percent. The percentage dropped to 2.4 percent in May 2007 which signifies a level comparable to those in developed countries, Tetangco reported.


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