THE peso is projected to stay "broadly stable" against the dollar, driven by a mix of external and internal factors, following a decline earlier this year.

Bangko Sentral ng Pilipinas (BSP) Gov. Eli Remolona Jr. told The Manila Times that the currency would be "influenced by external factors such as the timing and pace of US monetary policy easing, US election outcomes, China's economic slowdown and geopolitical concerns."

"Market optimism over robust economic growth, inflation within the government target, and an improving current account outlook with growth in goods and services exports will support the currency," he added.

The dollar has demonstrated significant strength, bolstered by the US Federal Reserve push to control inflation amid a tight labor market. The US central bank, however, has now initiated an easing cycle, starting with a jumbo 50-basis point cut, and has indicated that more is in store.

This shift, Remolona said, has contributed to a softening of the dollar, allowing for the recovery of emerging market currencies, including the peso.

The peso, which earlier in the year fell to the P58:$1 level after the BSP said it would start cutting key interest rates ahead of the Fed, has since returned to P55:$1 territory.

The interagency Development Budget Coordination Committee expects the rate to range between P56-P58:$1 this year. The 2025-2028 forecast is P55-P58:$1.

Structural foreign exchange flows, such as remittances from overseas Filipino workers, revenues from the business process outsourcing sector, foreign direct investments, and a recovering tourism industry, will also play crucial roles in supporting the peso, Remolona said.

The BSP chief stressed that the central bank operates under a flexible exchange rate policy, which he said "has been proven effective in serving as an automatic stabilizer or buffer against external shocks."

"This market-determined exchange rate policy has the benefit of reducing the negative impact of external shocks by allowing the exchange rate to adjust freely and help stabilize the country's balance of payments," he added.

Rather than targeting a specific exchange rate level, Remolona said the BSP aimed to smooth out excessive fluctuations that could impact inflation expectations and overall economic stability.

"The BSP has a wide array of policy tools that may be used to address speculative behavior, promote hedging among market players, and provide short-term liquidity," he noted.

"These include the US Dollar Repo Facility, the Exporters' Dollar and Yen Rediscount Facility, and the enhanced Currency Rate Risk Protection Program," he added.

The peso's ability to strengthen further, Remolona said, would depend on several factors, including the trajectory of US monetary policy, geopolitical developments, and continued growth in domestic economic fundamentals.