The country’s strong macroeconomic fundamentals will continue to support the Philippine peso, but the coronavirus disease 2019 (Covid-19) pandemic still poses a key risk to its performance, according to the Bangko Sentral ng Pilipinas (BSP).
In a virtual briefing, BSP Governor Benjamin Diokno noted the local currency’s resilience against the global health crisis, and said that “for 2021, the peso should continue to reflect emerging demand and supply conditions in the foreign-exchange (forex or FX) market, as well as emerging global developments, such as availability of the vaccine against Covid-19.”
The peso strengthened by 5.35 percent year to-date to close at P48.07:$1 on December 10, better than its end-December 2019 closing rate of P50.64:$1.
According to Diokno, the local unit can be supported by a recovery in remittances, continued inflows of foreign investments and rebound in exports as global economic conditions improve.
The BSP projects a 4-percent rise in remittance inflows next year. Foreign direct investments are seen to rebound with inflows of $7.5 billion, while foreign portfolio investments are estimated to hit $3.5 billion in 2021, which the central bank chief said was “in line with the consensus view of a recovery in investment sentiment given better global and domestic economic prospects next year.”
Exports of goods, meanwhile, are expected to recover with a forecasted growth rate of 5 percent on “stronger rebound in global and domestic demand conditions next year,” he added.
“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,” Diokno said.
He also said the peso and financial markets should benefit from the gradual reopening of the economy amid ample policy support from fiscal and monetary authorities.
But risks could emerge from uncertainty arising from the potential resurgence of Covid-19 cases, and its impact on the local and global economy.
“This may include the negative impact on overseas Filipino workers’ deployment, tourist arrivals, and the subsequent policies and travel restrictions, among others,” the Bangko Sentral governor said.
“At the same time, weak market sentiment may persist, if the availability and deployment of safe and effective vaccine is delayed,” he added.
To ensure stability in the forex market, he said the central bank implemented measures such as maintaining a healthy level of gross international reserves as a buffer, and reviewing and adjusting its macroprudential measures.
The BSP also uses 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, he added.
Last, Diokno said the central bank 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 in light of the pandemic. These include the easing of documentary requirements in reporting FX transactions with the BSP.
“The BSP believes that the key to keeping the stable performance of the peso is to preserve the country’s sound macroeconomic fundamentals and continued adherence to a market-determined foreign exchange policy,” Diokno said.