MANILA, Philippines - The peso appreciated to P42-per-US dollar territory yesterday as the greenback continued to weaken amid a surge of inflows.

The local currency gained 25.5 centavos to close at P42.755 per dollar, up from Friday’s P43.010.

Tuesday's finish was the strongest since the peso closed at P42.70 on May 15, 2008.

Philippine stocks also rose to hit a new high. The Philippine Stock Exchange index closed at 4,341.74, with net foreign buying at a hefty P367.9 million.

Exporters claimed to have stopped taking orders, their competitiveness eroded by the peso’s strength, but the central bank was nonplussed.

"Many of our exporters have stopped accepting orders ... employers either downsized or closed," said Sergio R. Ortiz-Luis, Jr., Philippine Exporters Confederation president.

Oscar R. Sañez, Business Processing Association of the Philippines president, said: "We are looking at the government to intervene, to stem the appreciation of the peso, like other countries."

A strong peso makes exports of goods and services more expensive. Money sent home by overseas Filipino workers (OFWs) also translates into fewer pesos.

Victor B. Abola, an economist at the University of Asia and the Pacific, said: "This level of the peso is destructive."

"It not only affects OFWs, exporters, domestic manufacturers, employment, but also BPOs (business process outsourcing firms)," he added.

The central bank, however, said it would continue to abide by the peso’s free float. Bangko Sentral ng Pilipinas (BSP) Deputy Governor Diwa C. Guinigundo pointed out, "the exchange rate reflects market fundamentals."

Marcelo E. Ayes, senior vice-president at Rizal Commercial Banking Corp., said the peso was buoyed by dollar inflows that stocked up over the long weekend.

"It is also the remittance season for our OFWs. [The dollar flows] will last until December," he added.

A currency trader said the dollar was weak due to the likelihood of another round of "quantitative easing" by the US Federal Reserve.

Quantitative easing (QE), or the purchase of government securities, will inject liquidity into the US financial system to stimulate the ailing economy.

As this developed, credit rater Fitch Ratings said the Philippines was less vulnerable to risks from easing but added that the government should be watchful of the peso’s movement.

In a teleconference to discuss a report titled "Emerging Asia Vulnerability to Global Quantitative Easing," Andrew Colquhoun, head of Asia-Pacific Sovereign Ratings at Fitch, said the Philippines was insulated because of its exchange rate policy.

"The Philippines is more insulated from the risks of QE. It has more scope to absorb flows because of its exchange rate," he said.

The country follows a free-float system, which means the market determines the peso’s value. Other emerging Asian markets follow a managed float or a crawling peg to the dollar.

Mr. Colquhoun, however, said policy makers must continue to monitor capital flows and their impact.

"Policy makers cannot be indifferent to the exchange rate as too strong currency appreciation may be a threat," he said.

"The Philippines is looking at domestic growth. If the peso gyrates sharply, that could disrupt growth prospects."

Asked if the Philippines should impose capital controls, Mr. Colquhoun said this may not be necessary.

Mr. Guinigundo, for his part, said: "The BSP is closely monitoring FX flows and is ready to take action as appropriate and necessary."