BSP remains upbeat on peso

DAVAO CITY – The Bangko Sentral ng Pilipinas (BSP) remains bullish about the continued appreciation of the peso against the dollar as this could be sustained with existing indicators pointing positively to such direction.

"We will be seeing a continued appreciation of the peso as long as the necessary conditions are there and are sustained," BSP Deputy Governor Armando Tetangco said.

Tetangco was here for the Davao City leg of the government’s year-end economic briefing along with incoming Trade and Industry Secretary Juan Santos and other heads of concerned agencies.

"There are factors bringing about the recovery of the peso and these can help in sustaining the improvement of the local currency," Tetangco said.

"Today the peso is benefitting from the weakness of the US dollar as well as from the positive reform momentum, specifically in the fiscal sector and increased portfolio investments inflow," Tetangco said.

He explained that what is helping the local currency to recover is also the fact that the market is now saying that the needed tax reforms are moving, particularly with the sin taxes and the signing of the Lateral Attrition Law.

"The market is responding positively because it shows that government is taking steps to address the need for such reforms in the fiscal sector," the BSP executive said.

The expected increase in foreign direct investments, Tetangco said, shall also be helpful in sustaining the recovery of the local currency.

He also insisted there is reason to ‘feel good’ with the current performance of the peso for the first month of the year compared to its weakness in 2004.

The peso was pulled to lowest levels last year due to market fears of a possible sovereign credit rating downgrade as well as concerns over the country’s fiscal situation.

The increased demand for the dollar to service year-end obligations also contributed to the peso’s weak performance last year.

Tetangco shrugged off criticisms the peso was the lowest in terms of appreciation against the US dollar compared to the other currencies in Asia that performed as much as 40 percent while the European currency, the euro, appreciated by as much as 59 percent.

"The peso has performed much better compared to other currencies. In 2003 the peso depreciated by as much as 40 percent and further in 2004. But during the first months of 2005 we have appreciated by 2.9 percent which is significant already," Tetangco said.

Tetangco brushed aside the Bloomberg survey last Feb. 1 that the peso appreciated only by a meager three percent compared to the euro’s 59 percent, the Korean won 49 percent, Japanese yen 30 percent, Indonesian rupiah 24 percent, Malaysian ringgit 22 percent, Thai baht 15 percent and Singapore dollar 12 percent.

"Just look at the period and see how our peso has improved a lot compared to the past months," he said.