The peso strengthened to a seven-week high on Tuesday, tracking the movement of other regional currencies after the People’s Bank of China (PBOC) slashed its reserve requirement ratio (RRR).
The currency gained 19 centavos to close at P47.35 to $1 from its P47.54 finish on Monday. It was the strongest level of the local currency in seven weeks since the P47.27 level on January 11.
The PBOC lowered its RRR by 50 basis points to 17 percent in order to address deflationary pressures and stagnating growth.
Nicholas Antonio Mapa, associate economist at the Bank of the Philippine Islands said the peso simply tracked the regional currencies with the PBOC move helping ease concerns about slowing growth in the world’s second largest economy.
“China has been 2016’s problem child and easing concerns about their slowdown helped boost risk sentiment with the peso benefiting from the risk on sentiment. Foreign players also helped boost both the peso and the stock market,” he said.
“The BSP [Bangko Sentral ng Pilipinas] was seen on the bid, trying to limit the sharp appreciation pressure and at the same time bolster its stock of foreign reserves,” he added.
For its part, the BSP said the latest decision of the Chinese authorities is a further demonstration of the government’s intent to stimulate the economy and should be positive for the markets.
“The yuan has been relatively stable lately and thus the market reaction to the RR move, though somewhat a surprise, was muted,” BSP Governor Amando Tetangco Jr., said in a text message to reporters.
Tetangco said the central bank is always mindful of the actions of other jurisdictions, and the recent move of Chinese authorities will be considered in its assessment of the stance of policy.
The peso opened at P47.44 to $1 at the Philippine Dealing System before trading between P47.34 and P47.46. Total transactions rose to P769.6 million from P396.1 million in the previous session.