Peso falls on BSP move to close SDA to foreign funds

MANILA, Philippines—The peso fell on the first trading day of the week to its lowest level in about two weeks as the move of the central bank to prohibit foreign funds from being invested in its special deposit account (SDA) discouraged some investors.

The local currency hit an intraday low of 42.015 against the US dollar before closing at 41.945:$1. The latest close was weaker by 15.5 centavos from Friday’s finish of 41.79:$1.

Intraday high stood at 41.875:$1. Volume of trade amounted to $901.38 million from $908.66 million previously.

According to Governor Amando Tetangco Jr. of the Bangko Sentral ng Pilipinas, the move to restrict foreign funds from being invested in the SDA was meant to discourage speculative activities.

Tetangco said the SDA facility has been meant only to siphon off excess liquidity within the domestic economy to ensure manageable inflation. He said the SDA should, therefore, not serve as a facility where foreign funds might be invested.

SDA is a facility where banks may place excess cash that they do not use for lending, in exchange for interest earnings.

The depreciation of the peso against the greenback was a desired outcome by the BSP.

The rise of the peso last week, when it hit a four-year high of 41.68:$1 on July 5, was believed to be boosted partly by speculation on the peso. Due to favorable developments on the country’s economic front, observers said peso-denominated assets have become attractive to portfolio investors.

The appreciation of the peso had elicited fresh complaints from the export sector, which said their growth target for the year would likely be missed because of the adverse impact of a strong peso. Appreciation of the peso makes Philippine-made goods more expensive in dollar terms and, therefore, less cost competitive.

Tetangco said while the BSP would welcomes portfolio inflows, it would not welcome speculation, especially that using the SDA facility.

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