BSP on Weakened Peso: Market Forces at Work

The Bangko Sentral ng Pilipinas (BSP) said it allows the exchange rate to be determined by market forces, following nervous sentiments from business groups over the peso’s continued weakening, which recently slipped beyond the ₱59 to US$1 level.

The recent peso depreciation may reflect market concerns over a possible moderation in economic growth, partly due to the infrastructure spending controversy.

“We continue to maintain robust reserves. When we do participate in the market, it is largely to dampen inflationary swings in the exchange rate over time rather than to prevent day-to-day volatility,” the BSP said in a statement.

The continued depreciation of the peso against the dollar has been a thorny issue amid the ongoing malaise in the Philippine stock market, which remains a laggard compared to other regional economies.

Analysts interviewed by The Financial District said that corruption issues involving ghost flood control projects and farm-to-market roads have deterred foreign investments.

Adding to business concerns are the country’s high debt levels and the growing perception of widespread corruption in various levels of government.

The recent peso depreciation may reflect market concerns over a possible moderation in economic growth, partly due to the infrastructure spending controversy, as well as expectations of further monetary policy easing by the BSP.

The BSP added that the peso continues to be supported by resilient remittance inflows, relatively strong economic growth, low inflation, and ongoing structural reforms.

Foreign exchange inflows from business process outsourcing (BPO), tourism, and overseas Filipino workers (OFWs) also help cushion the economy from external shocks.