Central bank intervenes as peso falls to new 10-mo low
By Doris Dumlao
Reuters, Philippine Daily Inquirer
First Posted 10:19:00 07/04/2008
MANILA, Philippines -- (UPDATE) The peso slid to a new 10-month low of P45.70 to the dollar Friday before heavy central bank intervention pulled it back to P45.45 near the day's close.
Currency dealers said the market sold down the peso on reports that year-on-year inflation surged to a 14-year high of 11.4 percent in June.
But as the Bangko Sentral ng Pilipinas unloaded dollars between P45.60 to P45.70, the market saw a good opportunity to lock in gains. As a result, the local currency closed slightly stronger than Thursday's P45.50 to the greenback.
The peso, now Asia's second worst performing currency next to the South Korean won, would have fallen deeper if not for BSP's dollar sales. Some traders estimated that the central bank accounted for as much as half of Friday's volume of $847.8 million at the Philippine Dealing System (PDS).
But despite the slight bounce that allowed it to close near the day's high of P45.43, the local currency tumbled by nearly P1 or 2.2 percent this week from last week's close of P44.46 to the dollar.
Since the start of the year, the peso has depreciated by about 9.2 percent, wiping out nearly half of the gains against the greenback recorded last year when the local unit was acclaimed as the region's best performing currency.
“The BSP was intervening aggressively but the market knew that the exchange rate had already moved up fast and that the central bank may tighten monetary policy anytime given the clear and present danger of inflation. Knowing that the BSP may even raise interest rates by 50 basis points, and might not even wait for the next policy rate setting (July 17) so some had taken profits,” a bank treasurer said.
Other dealers said there was heavy corporate demand for dollars, which added to pressures from a string of bad news on the local and global front. For instance, state utilities were sourcing dollars for maturing debt payments and other requirements, a banker said.
“People are nervous on what will happen during the weekend so they're buying dollars,” another dealer said.
“There's still not much incentive to take the peso yet so investors are staying on the sidelines, believing that the local currency could hit P46 to P47 to the dollar,” the dealer added.
As the BSP was still “behind the curve,” or its interest rates are still too low compared with what the market believed was needed to address rising inflation, the dealer said the trend was still bearish for the peso.
“There's a recurring theme of risk aversion given the US (credit) crisis and also the surging oil and other commodity prices are affecting the whole world,” said Rizal Commercial Banking Corp. senior vice president Marcelo Ayes.
“It will take major move, intervention by G8 (world's eight richest economies) to support the US dollar and collapse oil prices. I see that happening within one or two weeks,” Ayes said.
“The continued rise in oil prices are taking a toll on our currency. Oil companies especially companies that are highly dependent on imports are quick to buy the greenback as a consequence. There's a trend that whenever oil prices hit a new record high, the peso suffers,” said Astro del Castillo, managing director at local fund manager First Grade Holdings.
This developed as oil prices in US futures had hit a new high of $145 per barrel.
“Even Nostramadus wasn't able to predict this,” Del Castillo said. “The ghost of oil prices is really affecting the foreign exchange.”
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