MANILA, Philippines--The peso breached the 50-mark for the first time in two years on Friday but good tidings brought about by late-day bargain-hunting across Asian stock markets allowed it to firm up to 49.82 against the US dollar upon closing, currency dealers said.
The local currency opened at 50:$1 right away and hit a two-year low of 50.17 before ending near the day's high of 49.80 against the greenback.
But the improved sentiment from the late-day rebound of regional stock markets brought it P0.179 higher than Thursday's finish of 49.999 against the US dollar.
"Towards the end of the day, we saw some easing of pressures in regional equity markets so this provided relief to emerging markets," said Estelito Biacora, vice president for treasury at Bank of the Philippine Islands. "Fund managers are looking for some value in oversold stocks."
The local currency was also aided by sluggish corporate demand for foreign exchange, Biacora noted.
Volume at the Philippine Dealing System increased to $622.50 million from Thursday's $444.50 million.
He said this correction favoring the peso may continue to test the 49.75 and 49.50 levels.
"However, there's still uncertainty in emerging markets considering that the theme among investors is still flight to quality," he said.
Another currency dealer said the Bangko Sentral ng Pilipinas, which was trying to keep the peso above the 50:$1 level in the past few days, was sidelined as the exchange rate opened at this level right away. A bloodbath in the stock market further dragged down the currency to 50.17, its lowest level since touching 50.20 on Nov. 16, 2006.
However, the trader agreed that the stronger close would suggest a correction supporting the peso in the next few days.
On Thursday, the BSP's policy-making Monetary Board kept its key interest rates steady for the second straight meeting, citing the still-high core inflation rate and uncertainties from the foreign exchange volatility.
Core inflation, which removes volatile items like food and fuel to get underlying price trends, rose to 7.8 percent in October year-on-year from 7.5 percent in September even as the headline inflation rate dropped further to 11.2 percent from 11.8 percent, respectively.
Since the start of the year, the local currency has depreciated by about 17 percent against the US dollar.
Luz Lorenzo, an economist at stock brokerage ATR Kim Eng Securities, said in a commentary on Friday that the volatility in the currency market was a more pressing issue.
"We agree a volatile currency presents inflationary risks. Drastic depreciation or appreciation is undesirable as it makes pricing in general highly uncertain, and sellers will tend to factor in this volatility," Lorenzo said.
"Furthermore, even with easing headline inflation, most real interest rates are negative or close to zero based on the gap with the policy rate and that adds to downward pressure on the peso," she said.
Real interest rate refers to the difference between the prevailing interest rate and the inflation rate and computes how much an investor gets after the value eroded by the increase in consumer prices.
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