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Peso falls below benchmark level of 44:$1

Currently 1.00/5 1 2 3 4 5 Rating 1.0/5 (2 votes) The peso breached the psychologically important barrier of 44 to a dollar yesterday as the market anticipated the policy rate hike by the Bangko Sentral ng Pilipinas (BSP) in the wake of the rapid increase in the price of basic commodities. The peso has been testing the 44 level since last week but intervention from the Bangko Sentral ng Pilipinas (BSP) kept the currency from dipping below the psychological level until yesterday. The market has been down on fears that the BSP would raise its rates as well as the spreading pessimism over the announcement of the Arroyo administration that it would breach its deficit target. At the Philippine Dealing System (PDS), the peso dropped to as low as 44.10 to $1, its weakest level since October 2007, after the country’s inflation in May rose to a nine-year high of 9.6 percent. At the close, the peso settled at 44.070 to $1 down 12.50 centavos from Wednesday’s close of 43.945 to $1. Total volume amounted to $404 million on an average rate of 44.071 to $1. “The peso’s fortune seems to be affected by oil and domestic issues,” said one analyst. “Lower oil prices have seen a stronger peso and poor economic numbers have boosted the appeal of the dollar.” The BSP said it would not intervene in the currency market to hold inflationary pressures at bay, allaying fears that monetary officials planned to keep the peso rising against the dollar. BSP Governor Amando M. Tetangco Jr. said earlier that the BSP was not following a “strong peso strategy” as a monetary tool to control inflation which surged to 9.6 percent in May amid rising commodity prices. Speculations came in the wake of the weakening peso which had been slipping against the US dollar as foreign investors kept away from emerging markets in anticipation of a fall-out from rising inflation. According to Tetangco, however, the BSP’s only foreign exchange policy was to leave the determination of the exchange rate “largely to market forces.” “By implication, we don’t really use the exchange rate to manage inflation, although a stronger peso helped temper inflation in 2007,” Tetangco said. In 2007, the peso rose over 18 percent against the weakening dollar and this helped keep the inflation rate to an average of 2.7 percent despite the upsurge in the price of oil and oil products. Aggravating the impact of expensive oil products, the country was also in the midst of a rice supply problem that analysts believed to be self-inflicted. But Tetangco said the BSP was still convinced that food-related inflationary pressures were largely temporary and could be resolved with supply-related actions such as importation and increase in domestic production. “In these cases, monetary action could do very little to affect these supply-related forces,” he said. Tetangco said the peso exchange rate would also be affected by the anticipated volatility in capital flows, especially after the US Fed announced its latest policy rate cut and hinted that it could be the last. According to Tetangco, the signals being broadcast by the US Fed would feed into risk-aversion biases of investors and ultimately the direction of capital flows between developed and emerging markets. To the BSP, Tetangco said this could indicate volatility in capital flows, particularly portfolio investments that have been fueling the surge of the peso’s strength together with inflows from overseas Filipino workers. Related items Top 10 Reasons for Buying a Franchise Five Franchise Tips Gatchalian joins casino bid Global cuisines woo desi tongues Coming soon: Power Lotto with P50-M minimum pot Set as favorite Bookmark Email This Hits: 580 Comments (0) Subscribe to this comment's feed Write comment Name Email Website Title Comment smaller | bigger Subscribe via email (Registered users only) I have read and agree to the Terms of Usage. Write the displayed characters Add Comment

 

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