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BSP unfazed by peso depreciation trend

THE Bangko Sentral ng Pilipinas (BSP) shrugged off worries on the recent depreciation trend of the local currency, saying structural foreign exchange flows to the country are expected to remain strong in the coming months.

In a virtual press briefing on Thursday, BSP Governor Benjamin Diokno said that while the local currency is displaying weakness against the dollar in recent weeks, the long-term value of the peso remains stable as per their monitoring.

“While short-run fluctuations in the peso are affected by market sentiment, its medium- to long-term movements are largely supported by economic fundamentals,” Diokno said.

“Looking ahead, we expect the peso to be supported by structural foreign exchange flows such as overseas Filipino remittances, business process outsourcing receipts and eventually by earnings from tourism activities. Furthermore, foreign exchange inflows related to foreign direct investments are also expected to help shore up the currency,” he added.

According to data from the Bankers Association of the Philippines (BAP), the local currency closed at P50.305 on Thursday with a trading volume of $993.8 million.

In January this year, the peso averaged trade against the dollar at P48.061.

In its earlier projections, the BSP expects cash remittances to grow by 4 percent in 2021, bouncing back from the 0.8-percent decline in 2020. BPO receipts are expected to grow by 5 percent in 2021 from the 1.3-percent decline in 2020.

Diokno also said the peso is following the trend seen across the region against a strong dollar.

“Let me make this crystal clear: the peso is not the only currency that has depreciated against the US dollar on a year-to-date basis. The reality is that the peso depreciation has been broadly in line with regional peers,” the governor said.

Diokno reiterated that they remain committed to a flexible exchange rate arrangement amid the depreciation trend.

“We believe that the exchange rate acts as an automatic stabilizer in the face of external shocks. A market-determined exchange rate has the benefit of reducing the negative impact of external shocks as a floating exchange rate can appreciate or depreciate immediately to stabilize the country’s balance of payments,” Diokno said.

Image courtesy of (c) Aldarinho | Dreamstime.com
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