Factors Affecting QAR to PHP Exchange Rate
Interest rates and exchange rates have a close relationship. If Qatar increases its interest rates, it would provide a higher yield on its assets. Foreign investors and speculators will then want to invest in Qatar to attain a higher return on their money. To do this, they must exchange their foreign currency for Qatari Riyals, thus increasing the demand for the Riyal and henceforth increasing its value. An example of this is the USD to QAR exchange rate in 2008. The USD dropped in value from 3.64 to 3.38 in 3 months after the QCB increased interest rates from 4.25% to 4.75%. Although the interest rates increased, it was deemed negligible and had no effect on the exchange rate. Steep interest rate changes by the QCB would need to be substantial for it to have an effect on the QAR exchange rate.
Qatar’s economic stability has been quite solid over the past few years. With the increasing government revenues, high GNI and GDP per capita, the economy is in very good hands. Because of the increasing government revenues, it has filtered down into the public and increased their purchasing power for goods and services. This, in turn, has increased the imports into Qatar and led to a greater demand for foreign currency, thus decreasing the value of the Riyal to foreign currencies. For example, in 2009, the Swiss franc increased in value from 2.74 to 3.2 in a space of 12 months.
As stated before, exchange rates of the Qatari Riyal to the Philippine Peso are influenced by the respective country’s economic situation. An economic instability in the Philippines will decrease the Philippine peso’s value. Because of the uncertainty in the economy, foreign investors and businesses will pull out their investments in the Philippines to invest elsewhere in more stable countries. This would then lead to a lesser supply of foreign currency and an increased demand for the Qatari Riyal in the Philippines, thus increasing the value of the QAR.
Economic Stability
Economic stability reflects on the country’s economic condition by seeing how stable the economy is. Since the target is Qatar and the Philippines, the differences seen are on the economic stability. The current situation in Qatar can be said to be in good condition with an annual international trade of 262.3 billion US dollars in 2017. Other than that, Qatar gets a surplus every year from 2005 until now. In terms of GDP purchasing power parity, Qatar is in fifth place with 334 billion US dollars, with 129 thousand US dollars per capita. It is also supported by sustainable economic growth from 2007-2017. The indicator can be seen by the increasing GDP, starting from 74,532 QAR million (2007) to 185,864 QAR million in 2017. The high value of GDP is also supported by a stable inflation rate between 3.04% to 2.7%. High GDP and stable inflation rate are indicators of good economic stability. On the other hand, the Philippines is still facing some difficulties in stabilizing its economic condition. With a large population and a lack of natural resources, the Philippines is still struggling to reach a good economic condition. This can be seen from a high national debt that still persisted up to 20 trillion PHP in 2017. The debt makes the Philippines only capable of limited national development, with the allocation of a deadline budget for education, public health, and the security sector. National debt with limited national development causes a high unemployment rate and labor export. Last year’s data showed that the unemployment rate is still at 5-6%, and almost 10 million Filipinos are currently working abroad. Steps to stabilize its economic condition are still ongoing, with moderate inflation rate. However, reaching economic stability is no longer an easy job for the Philippines. It is because the economic condition that has already been shaped for a long time costs a lot of effort to make significant changes.
Inflation Rates
An appreciation in the rate of exchange for a country’s currency results from increased confidence in the country’s economic stability, which is derived from a strong economy. A country with a lower risk of inflation has a higher value of its currency when it comes to a foreign exchange market. Usually, inflation has a delayed and negative impact on the exchange rate. When the value of a currency decreases because of inflation, the central bank raises its interest rates to increase the value of its currency. However, this isn’t the case for the Philippines. As demonstrated in the chart above, changes in the inflation rate of the Philippines have a strong effect on the exchange rate of the peso right after the Asian Financial Crisis, while in more recent times the effect has been lessened. This shows that the inflation rate in the Philippines has a varying effect on the peso’s exchange rate with other countries, and for uptrending inflation rates, the result has been the depreciation of the peso. This is due to the Philippines relying more on OFW (Overseas Filipino Workers) remittances during such times, which tends to increase during rates of depreciation for the peso as it becomes cheaper for foreign currency.
Political Stability
There is likely to be an adverse effect on investments and on the level of access to foreign capital, which will lead to an appreciation of the QAR. Political instability will cause the relevant uncertainty, and changes in government will bring amendments in policies and law enforcement, which can prove to be harmful in decision making for both investors and international traders of PHP. This can lead to speculation by international currency traders who will expect the currency to weaken and thus sell it. If a change in political structure is leading to a change in government of a more authoritarian style, the fixed income-bearing instruments will have increased risk because of partial expropriation. This will all be detrimental to PHP. Stepwise regression tests carried out by Dhakal for the case of Nepal concluded that increasing political instability had led to an increased depreciation of NPR against the USD. This is the expected outcome of the PHP against QAR if political instability is prevalent.
An overview of political stability would be a systematic study of the extent to which changes in political conditions in a country lead to a change in the existing structure of the government. Political stability, though not covered by traditional economic theory, is an important aspect. A collective representation of ruling parties, reliable and orderly government, smooth policy changes, efficient law enforcement, low corruption, and clear distribution and exercise of power would be the characteristics of stability prevailing in a country. Political change in any shape or form will lead to uncertainty. This is because political systems are complex and interconnected with the economics of other nations.
