The firm peso will continue to be market-oriented based on a floating supply and demand exchange rate system, the central bank said.
Dollar-earning industries such as the $11-billion business process outsourcing sector that has been batting for a weakened peso will have to find other ways to remain competitive without the central bank-aided currency depreciation, according to Bangko Sentral ng Pilipinas (BSP) Deputy Governor Diwa C. Guinigundo.
"The peso is not exactly the fastest appreciating currency around even as we have one of the strongest economies where inflation is low and stable and the BOP (balance of payments) remains in surplus since 2005," Guinigundo said.
On a year-to-date basis, the peso appreciated against the US dollar by 4.08 percent at the end of the first semester atP42.12:$1. At last week's close, the greenback gained on the peso which depreciated to P42.33. Foreign exchange traders are still looking to trade at the P42 level in the next weeks.
At this rate, based on a BSP quarterly report, the peso is still weighed down by political uncertainties in the eurozone area. As a currency competing against other regional currencies, the peso is "moving in tandem" with the Singapore dollar which appreciated by two percent, the New Taiwan dollar at 1.4 percent and South Korean won at 0.5 percent, said the report.
"Weaken the peso? When in real terms we have been broadly competitive? When our interest rates have hit historic lows and our money supply is very ample," stressed Guinigundo.
Guinigundo said ways of "weakening the peso" will not yield positive results for the general economy as this could mean reducing interest rates even further which would risk asset price bubbles, which today is still manageable.
"By buying more dollars in the foreign exchange market and lead BSP into fiscal difficulty?" Ask Guinigundo who again, discarded such suggestions. "Let's (just) remain market based so our exporters will really learn how to compete in the global markets even more strongly."
Based on BSP data, the peso volatility as measured by the coefficient of variation of the daily average exchange rates, is a little higher in the second quarter ending in June at 0.024 percent compared to the previous quarter's 0.011 percent.
On a real, trade-weighted basis, the same data showed that the peso's external price competitiveness eased slightly against the basket of currencies of major trading partners such as the US, Japan, the United Kingdom and the eurozone. In technical terms, the BSP explained, "(This) developed as the nominal appreciation of the peso more than offsets the narrowing inflation differential relative to these baskets of currencies." This led to an increase in the real effective exchange rate or REER index of the peso.
In a forum organized by the Philippine Exporters Confederation last week, exporters called on the BSP to do something about the "oppressive" exchange rate policy as this is hurting not only exporters but the BPO sector, the most promising dollar earning industry in the country.
BPO operators are worrying about its lost opportunity especially after the Indian rupee has depreciated 5.7 percent more in the last quarter. India is the Philippine BPO sector's fiercest competitor.
Last year, the Philippine Chamber of Commerce and Industry has already expressed worries that if the peso appreciates past the P42level this will delay expansion plans for the BPOs.