The peso continued to gain ground against the US dollar. Since reaching a low average of P55.08/US$ on 12 March 2003, the peso has recovered to trade within the P53.50- P52.50/US$ range during the first two weeks of April. The recovery, which started around mid-March, was due in part to the reduced uncertainty in the Iraq situation as the market priced in a quick resolution of the conflict in the Middle East. Also having a positive effect on the peso was the number of measures earlier implemented by the BSP to curb speculative demand for dollars and moderate market volatility. These measures included the following:
- Limiting the tenor of forward contracts to a maximum of 6 months;
- Reducing the allowable overbought position of banks to 2.5 percent of unimpaired capital or US$5 million, whichever is lower;
- Imposing appropriate sanctions against banks violating BSP foreign exchange regulations;
- Raising the liquidity reserve requirement by one percentage point, from 7 percent to eight percent; and
- Removing the tiering scheme for banks' short-term deposits under BSP’s Reverse Repurchase Facility and Special Deposit Accounts.
With its steady appreciation, the peso is now one of the best performing currencies in the region. Compared to its level in end-2002, the peso has gained 1.4 percent against the US dollar along with Thai baht (0.86 percent), Indonesian rupiah (0.68 percent) and New Taiwan dollar (0.20 percent) as of 14 April. Other currencies in the region, on the other hand, have depreciated against the dollar since end-2002 such as the Singaporean dollar (-2.33 percent), South Korean won (2.14 percent) and Japanese yen (0.61 percent).
Adjusting for inflation, the peso depreciated against trade-weighted basket of currencies. Data on the real effective exchange rate (REER) index  for March indicate that the peso depreciated relative to the currencies of the major trading partners (MTP) by about 4.0 percent in March 2003 from its level in December 2002. The REER for the broad and narrow baskets of competitor currencies fell by about 2.7 percent and 3.6 percent, respectively. Overall, these developments indicated the continued improvement in the country’s external price competitiveness.
The BSP will continue to closely monitor developments in the foreign exchange market to ensure that speculative activities are averted and orderly market conditions are maintained. Moreover, monetary authorities will be carefully assessing the impact of foreign exchange developments on the inflation outlook so that appropriate policy responses, if any, are implemented to ensure the achievement of the BSP’s primary objective of price stability.
 The basket of the major trading partners is composed of the currencies of the US, Japan, Germany and the United Kingdom. The broad basket of competitor countries is composed of the currencies of Singapore, South Korea, Taiwan, Malaysia, Thailand, Indonesia and Hong Kong while the narrow basket is composed of the currencies of Indonesia, Malaysia and Thailand only.