Philippine peso rises: How it affects OFW remittances

Manila: The peso has clawed back some lost ground against the US dollar, further strengthening on Thurdsay.

The local currency has demonstrated a modest appreciation in three out of four trading days this month against the US greenback.

It improved to 58.071 vs $1 on Thursday (February 6), up slightly from February 3, 2025, when the exchange rate stood at 58.375 pesos per US dollar.

In theory, a stronger local currency could mean lower Overseas Filipino Workers (OFW) remittances in peso terms, as sending money home will find that their dollar earnings convert to fewer pesos, affecting families who rely on remittances.

Over the past four trading days, the peso averaged Php58.381, slightly higher than the previous month's average.

But it's still below the Php55.849 average recorded in February 2024, according to data from the Bangko Sentral ng Pilipinas (BSP).

This recent strengthening of the peso aligns with broader regional trends observed in the latter part of 2024.

Analysts noted increased bullishness on Asian currencies, including the Philippine peso, as expectations of US Federal Reserve rate cuts softened the US dollar, enhancing the appeal of risk-sensitive assets.

A September 2024 poll highlighted that bullish bets on the peso had reached a four-year peak, reflecting growing confidence among investors.

Despite these gains, the peso's value remains lower than its average from a year ago.

In February 2024, the peso averaged 55.849 pesos per US dollar, indicating a 4.5 per cent depreciation over the past year.

This decline can be attributed to various factors, i.e. adjustments in the country's economic growth targets and external uncertainties.

In December 2024, Manila revised its 2024 GDP growth target to 6.0–6.5 per cent, down from a previous target of up to 7 per cent, citing evolving domestic and global uncertainties.

In practical terms, the recent gains means fewer pesos are needed to buy one US dollar. This has several implications for different sectors of the economy:

One upside is cheaper imports, i.e. imported goods such as oil, food, and electronic components become more affordable since they are priced in US dollars. This can help lower inflation and benefit consumers.

It could also help lower foreign debt payments in peso terms. The government and businesses that have borrowed in US dollars will have lower debt servicing costs since they need fewer pesos to repay their loans.

It could also mean stronger consumer purchasing power, as a stronger currency increases the value of salaries and savings in local currency when purchasing imported goods or traveling abroad.

On the other hand, Philippine exporters earn less when the peso strengthens as their products become more expensive in foreign markets, potentially reducing demand.

It could also potentially slowdown foreign investments. Some foreign investors may find the Philippines less attractive as an investment destination if the peso strengthens too much, making local assets more expensive.

The peso's performance is influenced by a complex interplay of domestic economic policies, global market dynamics, and investor sentiment.

While recent gains are a positive sign, the currency's trajectory will depend on ongoing economic developments both within the Philippines and internationally.