If the dollar is weak, will the peso strengthen?

Here’s investment advice based on what the BSP is supposedly doing with its foreign exchange reserves and gold:  Sell US dollars, and buy real estate, gold, stocks.  In effect, Mangun says that we should think of what’s out there as an emerging inflationary bubble.

On the dollar and gold, Mangun echoes the views of Buffett and PIMCO.  So perhaps that’s a short-term lemmings play.

On real estate and stocks, it is certainly true that recently these assets have been doing well in the Philippines.  For Mangun’s “predictions” to come true, the central bank must be willing to tolerate such asset inflation pretty much in the same way that Greenspan did to ensure “prosperity” in the United States in the run-up to the Great Recession of 2008.  My guess is that those responsible for monetary policies in the Philippines do not want to follow the Greenspan legacy (as it is, Greenspan has lost a fair amount of reputation for his toleration of what is now commonly called irrational exhuberance).

The IMF advice is probably contrary to what Mangun thinks.  I believe that the IMF would suggest a fairly orthodox macro policy: Have an exit plan when economic recovery sets in.  The problem is in the interim, as in now, when we don’t know yet whether there is an economic recovery.  Here, the idea is to keep monetary policy easy, and then Mangun’s scenario could work out.

Mangun does believe that the peso will strengthen.  This is not quite consistent with an easy monetary policy unless the BSP will intervene and let its exchange reserves fall.  As usual, talk is cheap but salt is abundant.


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