BSP Governor Benjamin Diokno
MANILA – Philippines’ strong macroeconomic fundamentals continue to support the peso, which has remained stable in the last five years and continues to be resilient amid the pandemic.
As of August 19, 2020, the peso has strengthened against the US dollar by about 4.24 percent to PHP48.58 against its PHP50.64 close by end-2019, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno told journalists in a virtual briefing Thursday.
The local currency is among the few Asian units that continue to appreciate against the greenback. The others are the Chinese yuan, the Taiwanese dollar, and the Japanese yen.
Diokno attributed this positive development to the impact of a benign inflation environment, strong and resilient banking system, prudent fiscal position, and sufficient level of international reserves.
He said the favorable credit rating standing of the country, along with the government’s “timely and decisive macroeconomic measures to mitigate the adverse impact of the pandemic”, also contributes to the peso’s strength.
The peso’s performance also benefits the domestic inflation environment as it tempers monetary authorities’ inflation forecasts and addresses inflationary pressures from the rise of global oil prices, among others, he said.
“The prevailing inflation environment, in turn, allows continued policy space to support economic activity as needed,” he added.
Diokno said the peso is expected to be hurt by the drop in remittance inflows from overseas Filipino workers (OFWs) as well as weaker exports and tourism receipts, but it is seen to remain strong because of favorable investors’ sentiments.
“The peso is also expected to benefit from the gradual reopening of the economy amid ample policy support coming from the fiscal and monetary authorities,” he added.
To date, the local currency is trading at 48-level against the dollar, better than economic managers’ 50-52 to a US dollar assumption for this year.
Diokno said the assumptions set by the inter-agency Development Budget Coordination Committee (DBCC) are primarily for the national government’s budgetary planning and “should not be construed as forecast for the exchange rate.”
“It’s a matter of policy that the BSP does not target a specific level for the exchange rate. This is in keeping with our objective of allowing the peso to be market-determined,” he said.
Diokno further said economic managers’ foreign exchange assumption is based on the full-year average rather than the end of period trading level.
“So while the daily peso-dollar rate has appreciated in recent weeks a year-to-date average of 50.28 per one US dollar remains within the DBCCC assumption,” he said.
Diokno said the peso is seen to reflect emerging demand and supply conditions in the foreign exchange market in the near term. (PNA)
