MANILA – Currencies of ASEAN-5 members as well as India posted depreciation this year but the Philippine peso’s weakness was limited by the country’s stable economic and policy conditions.
This is the assessment of a Moody’s Investors’ Service report entitled “Governments of ASEAN-5 and India: Currency Flexibility, Policy Vigilance Support Sovereign Credit Profiles.”
ASEAN-5 groups Indonesia, Malaysia, the Philippines, Singapore, and Thailand.
The weak global demand has affected countries and the study said currency pressures were strongest in commodity exporters like Indonesia and Malaysia.
Among the six countries included in the report, the study said Malaysia and the Philippines have the biggest portfolio investments in their international liabilities.
It explained that political uncertainty in Malaysia along with capital account volatility and currency pressures increased this year.
“But the Philippines avoided similar outflows due to relatively stable economic and policy conditions,” it said.
And as currency pressures increase so is the cost of foreign debt, it said.
“However, by allowing their currencies to adjust to trade and investment trends, local authorities have averted the kind of balance of payments shock witnessed during the 1997/98 Asian financial crisis, when governments expended reserves to keep their exchange rates stronger than economic fundamentals suggested,” it said.
And because of the current situation, the report said “reviving growth will be a priority” next year.
This as exchange rate pressures is seen to persist next year “as China slowdown curbs export growth and US monetary policy tightening weakens net capital inflows.”
“Given the skittish markets, the desire to sustain investor confidence will keep governments from unleashing stimulus that would raise macroeconomic imbalances,” it said.
Amidst the negative situation, the study remains optimistic on the six economies’ ratings outlooks.
“While exports weakness and capital outflows are credit negative, currency flexibility combined with respective government’s ongoing efforts to improve macroeconomic conditions offsets these trends,” it said. (PNA)
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