(STAR) By Des Ferriols - The peso continued to rally yesterday, edging closer to the psychologically important level of 41-to-a-dollar as it settled at 42.120 due to strong inflows from investments as well as remittances from overseas Filipino workers (OFWs).

Foreign exchange inflows that had to wait over the long weekend continued to boost the peso against the dollar, with OFW remittances picking up even more momentum towards the holidays.

The peso opened at 42.350 to $1 at the beginning of yesterday’s trade and went steadily up to its closing rate of 42.120 to the dollar which was also the intra-day high. Yesterday’s close was 18.50 centavos higher than Monday’s close of 42.305 to $1.

The volume was thinner, reaching $503.12 million against the previous day’s $621.10 million. But traders noted very little demand for dollars which pushed the peso up even higher.

Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco Jr. said the peso would have been significantly stronger without the measures that eased foreign exchange outflows.

According to Tetangco, the appreciation of the peso worked in favor of the economy, first by allowing the build up in the country’s international reserves and creating a room for more flexibility in debt management.

From a policy standpoint, however, Tetangco said the strength of the peso also allowed the BSP to work through the initial phase of the liberalization of foreign exchange outflows.

Allowing the more liberal outflow of foreign exchange, according to Tetangco, also had the side-effect of taming the appreciation of the peso since forex inflows are not forced to stay in the country.

“In a way, the effects of these strategies have increased the demand for dollars,” Tetangco said.

Since forex outflows are allowed with more ease, Tetangco said the exchange rate did not appreciate as steeply as it would have.

Tetangco said the demand for dollars was also boosted by the fact that both the private and public sectors have taken advantage of the strength of the peso to prepay up to $2.55 billion worth of foreign obligations since it had become cheaper to do so.

“If we had not taken these steps, the peso would have been a lot stronger and appreciated a lot more steeper,” he said.

Tetangco said that these indirect measures, more than direct intervention, had better chances of taming the appreciation of the peso since the BSP’s market activities were geared only to smoothen volatility.

The International Monetary Fund (IMF) said as much, reporting that the intervention of the BSP in the currency market has done little to slow down the peso and would have little effect on future appreciation.

Chief News Editor: Sol Jose Vanzi

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