Peso tumbles to 42.615 to $1
By Doris Dumlao
Philippine Daily Inquirer
First Posted 04:03:00 05/09/2008
MANILA, Philippines—The peso tumbled Thursday to 42.615 to the dollar, its lowest rate so far this year, as Wednesday night's (Manila time) bloodbath on Wall Street and spike in global oil prices to a new record of $123 a barrel spooked the Philippine currency market.
The peso shed 0.175 from Wednesday’s finish of 42.44 to the dollar. The volume of trading reached $555 million.
“This was expected, given the fall in Wall Street stocks,” said Jonathan Ravelas, chief strategist at Banco de Oro Unibank.
He said that with the breach of a key barrier at 42.50 to the dollar, the next target would be 43.00.
The Dow Jones Industrial Average slumped 206.48 basis points on Wednesday as a surge in global oil prices to $123 a barrel as well as expectations of higher inflation and interest rates dampened investor interest.
The peso opened trading at 42.50 to the greenback, which became the intra-day high, and hit a low of 42.675 before closing.
Roland Avante, treasurer at Chinatrust Philippines Commercial Bank, said demand for dollars was growing because of the rising costs of imports, particularly of crude oil.
“The dollars that are coming in, such as from overseas remittances, are not enough to meet rising corporate demand,” Avante said.
About $1 billion in foreign exchange remittances from overseas Filipinos come in through the banking system every month.
Other dealers said banks were selling the peso down and going “long” on the dollar.
On the domestic front, jitters over rising food and fuel prices have dampened market demand for the peso, which in 2007 surged nearly 19 percent against the dollar and was Asia’s best-performing currency.
In April, the country’s inflation rate spiked to a three-year high of 8.3 percent, overshooting the central bank's maximum expectation of 7.0 percent.
In the past, rising inflation usually boosted investor appetite for the peso because it usually led to the central bank's tightening of monetary policy through a rise in overnight interest rates or in the reserve requirement. But with the recent surge in inflation and market consensus that the country has yet to see the peak of it, rising consumer prices have turned the tide against the peso.
Meanwhile, the central bank expects an $80-billion foreign exchange pool among Asian nations to help insulate the region from external shocks similar to the 1997 regional currency turmoil.
“Once this is in place, it will provide another layer of insurance against any external shocks that may be experienced by any member or shared by all in the region, including shocks that would put pressure on exchange rates,” Governor Amando Tetangco Jr. of the central bank, Bangko Sentral ng Pilipinas, said in an email from Madrid.
Tetangco, who attended the Asian Development Bank’s recent annual meeting, held in Madrid, said the detailed mechanics of the swap arrangement were still being finalized.
“What is important to underscore though is that this swap arrangement highlights the current level of cooperation in the region, which is one of the valuable lessons from the financial crisis of 1997,” he said.
The Philippines has a strong external liquidity position, as do most countries in the Asian region, Tetangco said.
“Thus, the fact that this agreement is being put in place during peaceful times is the region’s signal to the markets that it is being proactive in strengthening self insurance to meet external volatilities,” he said. Edited by INQUIRER.net
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