MANILA - The peso languished near its lowest levels in 12 years against the dollar after the Bangko Sentral ng Pilipinas' surprise cut of the reserve ratio requirement (RRR) for banks.

The peso closed at P52.34 to the greenback according to the Philippine Dealing System from Friday's close of P52.

The BSP's Monetary Board last week cut the reserve ratio requirement by 1 percentage point, a move that would add more money into the system.

BSP Governor Nestor Espenilla however clarified that the RRR cut has yet to take effect and said they don't expect it to have any bearing on the exchange rate.

"Please note that the actual RR cut hasn't even happened. It will on March 2. But even when it's actually cut, BSP will be actively managing overall liquidity conditions. So it should be neutral on the exchange rate," Espenilla said in a text message to ABS-CBN News.

Espenilla also said the day-to-day volatility of the peso was based on sentiment and speculation, and therefore should be "self-correcting."

BDO chief market strategist Jonas Ravelas also said the peso's weakness was a "knee-jerk reaction" to the RRR reduction, and that dollar demand due to portfolio outflows also weighed on the peso.

The market is seeing a "dovish" central bank that is likely to support growth and an economic team that has "greater tolerance" for a weak peso, said ING Bank senior economist Joey Cuyegkeng.

A seasonal spike in remittances next month and capital inflows from stock rights issues will provide temporary relief for the local currency, he said.

A wider trade deficit and policy rate increases will continue to weigh on the peso, Cuyegkeng said.