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Peso will remain stable vs US dollar

The peso is expected to remain stable in the near term and supported by structural inflows from exports, remittances and foreign direct investments (FDI), said Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno.


The peso, which depreciated to P51.50:$1 on Wednesday, Jan.19, will “remain to be market-driven,” said Diokno. When asked if the local currency will hit P52 in the near term, he said that as BSP chief, “I do not speculate.”


“We expect it to continue reflect the economy’s long-run macroeconomic fundamentals meaning manageable inflation environment, strong and resilient banking system, a prudent fiscal position, and an ample level of international reserve buffer,” he said during his weekly online press briefing on Thursday, Jan. 20.


Diokno reiterated what he always say that the the stability of the peso will be supported by structural inflows from exports, overseas Filipino remittances, business process outsourcing receipts and FDI.


“These inflows are seen to continue as the domestic economy recovers and external demand strengthens owing to the global economic recovery,” he added.


Foreign exchange traders are currently speculating that the peso could weaken further and test the P51.50-P51.70 levels in the next days.


Last week, Fitch Solutions said they think the peso will weaken to P52 against the US dollar in 2022 as external accounts get worse this year. Fitch said the peso will gradually depreciate which has been expected even by the BSP as global interest rates normalize.


In 2021, the peso dropped by six percent year-on-year to P50.99 against the US dollar.

Meantime, Diokno said the BSP is pursuing foreign exchange (FX) policy amendments in the next months as follow up to the latest round of reforms to improve banks’ flexibility in managing their foreign currency funds.


The BSP has released Circular No. 1134 last December to provide banks the “opportunity to perform efficient and flexible liquidity cash management” of their FX-denominated funds “by streamlining the rules on lending to the regular banking unit by foreign currency deposit units (FCDUs).” This is the second phase of the central bank’s staggered reform agenda for FCDUs.


“As a regulator, the BSP is committed to pursuing policy initiatives that strengthen the banking industry’s capacity to manage risks amid a fast-evolving global financial system landscape and a more integrated global economy,” said Diokno.


The circular expanded the coverage of BSP supervised institutions allowed to do FCDUs such as Islamic banks and digital banks. The revised regulation rationalizes the requirements for certain expanded or E/FCDU transactions like foreign currency derivatives activities and securities transactions.


Diokno said with the liberalized FX rules, banks are expected to properly manage risks related to foreign currency deposit transactions and to integrate the related risk management system into their institutional risk management system.


Source: Manila Bulletin

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