Peso continues to slide

Despite the rise in the overnight rates of the Bangko Sentral ng Pilipinas (BSP), the peso remained weak against the dollar, losing another 3.5 centavos to close at P41.665 compared to the previous day's close of P41.630 to a dollar, currency traders said.

The BSP announced yesterday that it had raised its overnight rates by 50 basis points in response to the 50 basis points rise in US interest rates. But it failed to restore confidence on the local currency as investors continued to bet on the dollar.

"Big foreign banks are still positioning and they are betting on the peso's continued weakness," a trader from a local commercial bank said.

The peso opened the lower at P41.680 from the previous day's close of P41.630 after the US Federal Open Market committee approved a 50 basis point increase in its interest rates. Traders said it continued to weaken to P41.690 in mid morning's trading until the BSP increased its own key interest rates.

Still, traders said the local currency remained at the P41.6 territory. Its weighted average was at P41.662 to $1, 4.9 centavos lower from Tuesday's weighted average of P41.613. Trading was brisk as total transactions stood at $145.5 million, up from $86.6 million the previous day.

"The increase of the BSP rates have a zero-effect on the foreign exchange market because it only matched what the US Fed did," a trader from a foreign bank said. "There is still negative sentiment on the peso because of the conflict in Mindanao."

They said the BSP should have given investors in premium for the risks involved in investing in the peso and other peso-denominated instruments. They said the BSP should have raised its rates by 75 basis points, 25 basis points higher than that of the US.

With the still unresolved Mindanao crisis, traders said the market is now eyeing a P41.75 to $1 rate for the peso. There are even fears, they said, that it could go to P42 to a dollar.

BSP manager director Diwa Guinigundo, however, said there are many factors involved in the peso's slide against the dollar. He said had the BSP not raised its overnight rates, then the depreciation of the peso could have been worse.

"It could have been worse if we did not do anything," he said. "We expect the peso to stabilize very soon. We will allow the market to absorb the latest measure done by the BSP. The policy rates will be continuously reviewed and adjusted promptly as the situation may require." --