The peso continued to nosedive yesterday, breaching a key resistance level of 42 to the dollar as it closed at 42.370 amid persistent concerns over the spate of bombing incidents in Metro Manila.
Currency traders said worried investors, frightened by the recent bombings in Metro Manila, have put their money in dollars, thinking that it is the safest form of investment during times of uncertainty.
At the black market, they said the peso was quoted at between 42.30 to 42.40 to the dollar.
"The peso's fall is fueled by negative sentiment. It is a follow-through of what happened on Monday. It is still a downward spiral for the peso," a trader from a local bank said.
The peso retreated by more than 45 centavos compared with the previous day's close of 41.915 to the dollar.
It was trading at a high of 42 and a low of 42.375 to the dollar. Its weighted average was 42.158, 35.7 centavos lower than Monday's average of 41.801.
Volume of transaction remained strong at $161.5 million, up from $157.7 million the previous day.
Bangko Sentral ng Pilipinas Gov. Rafael B. Buenaventura said the BSP is still reviewing whether to jack up its overnight rates or keep it at 10 percent (for borrowing) and 12.25 percent (for lending).
He said the BSP wants to know if the depreciation of the peso will hurt the country's economic performance for this year.
"We are reviewing that in the context of what its impact on inflation and the gross domestic product (GDP) will be and balance that with what it will do to borrowers," he said.
Buenaventura said they are still assessing if the peso's weakness will lead to higher prices of imported oil and other raw materials used to manufacture local goods. If it does, then it will probably drive up prices of commodities and send inflation upwards.
The review, he said, is expected to be completed soon.
Traders said for the first time in several days, the BSP was not selling dollars to help prop up the peso.
They said this was a positive move since any attempt to rescue the local currency will be futile at this point. Traders said if the BSP sells dollars, it will just waste its foreign reserves.
"Intervention will be just a futile effort. If the BSP wants to be a hero and rescue the peso, it will only waste its precious reserves," a trader from another bank said.
The BSP may be forced to increase the reserve requirement on bank deposits or on common trust funds (CTFs) to contain the rapid depreciation of the peso.
Monetary authorities are considering this option after the recent one percentage point hike in key borrowing rates failed to arrest the weakening of the local currency.
The reserve requirement on bank deposits now stands at 10 percent for commercial banks and 12 percent for thrift banks. This means that for every P1 deposit, banks must set aside 10 or 12 centavos as reserve requirement in case of heavy withdrawals. -