Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno reiterated Friday that the peso vis-à-vis the US dollar will continue to be “supported by fundamentals” in the “long run”.

And, he said that “over the near term, the peso should continue to reflect emerging demand and supply conditions in the FX (foreign exchange) market as well as the continued soundness in the country’s macroeconomic fundamentals.”

 “Likewise, favorable investor sentiment over the economy’s strong position (relative to other emerging economies) in terms of debt management and FX cover could likewise provide support to the peso,” added Diokno. “Furthermore, the peso and financial markets should benefit from the gradual reopening of the economy amid ample policy support from fiscal and monetary authorities. Nonetheless, risks could emanate from uncertainty surrounding the fear of resurgence of COVID-19 and impact on the domestic and global economy.”

The peso at the P48-level is one of the region’s best-performing currency for a consistent number of years, and one of the strongest during the time of the pandemic.

The peso is generally viewed as stable as it appreciated by 5.4 percent year-on-year as of mid-December, based on BSP data. It has performed better compared to other Southeast Asian currencies and appreciated vis-à-vis the US dollar along with the Chinese yuan, Taiwanese dollar, South Korean won, and the Japanese yen, year-to-date, it said.

 “Analysts are expecting the peso to maintain its resiliency as one of Asia’s top-performing currencies,” said Diokno.

He reiterated that the peso’s strength comes from positive macroeconomic fundamentals including benign inflation outlook, a strong and resilient banking system, prudent fiscal position and healthy reserve buffer that has already reached $104 billion.

He also said the impact of expected weaker inflows such as decline in exports and tourism receipts could be offset by favorable investor sentiment. 

The BSP has a flexible exchange rate system and it relies on a set of measures to cushion the impact of sharp peso movements such as maintaining adequate FX reserves, and reviewing and calibrating existing macro-prudential measures.

Diokno said the key to a stable peso is not only to preserve macroeconomic fundamentals but also a market-determined foreign exchange policy.

He listed what the BSP is doing to ensure FX market stability so far, such as: maintaining sufficient buffer; reviewing and adjusting macro-prudential measures (adjusting risk weight for non-deliverable forwards); and using liquidity enhancing and management tools including the US dollar repo facility and exporters’ dollar and yen rediscounting facilities; and the enhanced guidelines on the Currency Rate Risk Protection Program.

 “In light of the pandemic, BSP granted operational relief measures for FX transactions to facilitate the public’s access to FX resources of the banking system, and help finance legitimate FX transactions. These include the easing of documentary requirements in reporting FX transactions with the BSP,” said Diokno.