The peso nearly broke through the critical 43-to- the-dollar level , hitting a new 19-month low of 42.950 to the dollar during intraday trading yesterday at the Philippine Dealing System (PDS) as demand for the greenback continued to surge due to the worsening Mindanao problem and in anticipation of a further hike in US interest rates.
At the end of the trading day, however, the peso managed to recover to close at 42.910, or 54 centavos lower from Tuesday's close of 42.370 to the dollar after the Bangko Sentral ng Pilipinas (BSP) announced the possibility of raising anew its overnight rates by another half a percentage point tomorrow.
Traders said the BSP also sold dollars at the foreign exchange market to support the sagging peso.
The peso's weighted average stood at 42.749 or 59.1 centavos lower than Tuesday's average of 42.158 to the dollar. Total volume of transactions reached $119.3 million, slightly lower than Tuesday's $161.5 million.
"It (movement of the peso) is still sentiment-driven. First, because of the domestic situation which is clearly not favorable to investors. Second the tightening bias of the US Federal Reserve has caused investors to shy away from emerging markets including the Philippines," a trader from a medium-sized commercial bank said.
Earlier yesterday, Finance Secretary Jose Pardo gave assurance that the peso's decline is only temporary, even as he cited figures indicating that in percentage terms the peso has not depreciated as much as other currencies in the region.
For his part, trade and industry secretary Manuel Roxas II said the business sector has nothing to worry about the continued drop of the peso, saying that Monday's Treasury bill (T-bill) auction will be a key indicator of how bad the situation could go.
Roxas said the weakening of the peso was not unique since the entire region was going through the same upheaval.
Allaying fears that another currency crisis is in the offing, Roxas said that although the peso has been losing ground, it was still trading within the band set by the BSP and this was only an expected result of the rise in US interest rates.
"There may be a magnification and exacerbation because of the problems in Mindanao but this is not unique to us, " Roxas said, adding that "our macro economic figures are still strong."
Roxas refused to speculate how low the peso could go or how long interest rates would continue to be stable but admitted that Monday's T-bill auction will be critical.
Exporters, on the other hand, said they were not happy with the currency fluctuations although several quarters moved that they would benefit from a weak peso. A weak peso would mean higher peso proceeds when exporters convert their dollar earnings.
According to Sergio Ortiz-Luis, president of the Exporters Confederation of the Phils., everytime the peso weakens, buyers of local products abroad demand for a discount when importing from the Philippines.
"We want a stable currency rather than a weak one. We are comfortable at a rate that is anything below 40, that is from 40 to 41," he explained. -