MANILA - The peso held at the P52 level against the dollar on Tuesday, its weakest in nearly 12 years, as investors gauged the effects of the Bangko Sentral ng Pilipinas' decision to cut the reserve requirement for banks.
The peso slumped to 52.303 in early trading from the previous day's close of P52.34. The Philippine Stock Exchange Index edged up 0.08 percent to 8,717.09.
Concerns that the one percentage point reduction in the reserve ratio requirement or RRR would fan inflation weighed on the peso on Monday. The local currency had weakened in recent weeks also due to the growth in imports outpacing exports.
The RRR cut was "more of an operational adjustment rather" rather than a shift in its policy stance, said Aaron Say, a consultant at First Metro Securities.
Say said it remained to be seen whether all of the estimated P90 billion that was freed up by the RRR reduction would be lent to the market.
The additional liquidity could be non-inflationary, if it is "spent in productive activities," Say told ANC's Market Edge with Cathy Yang.
Governor Nestor Espenilla of the BSP said Monday the peso's weakness was based on market sentiment and the exchange rate would be "self-correcting."
The RRR reduction "should be neutral on the exchange rate," Espenilla said, adding it would take effect on March 2.
Say said the recovery in the equity market needs to be sustained by positive corporate earnings reports, with big companies set to disclose fourth quarter and 2017 data next week.
There is still "lingering pressure" to sell in the absence of positive news, as the main index approaches the 9,000-point level, he said.