Peso is now P43.40 To $1

Despite efforts by the Bangko Sentral ng Pilipinas (BSP) to defend the peso against speculative attacks by raising anew its key overnight rates, the local currency continued to plumb new depths, closing at a near 20-month low of 43.40 to the dollar yesterday, due to security and political concerns as well as fears of more interest rate hikes in the US.

The last time the peso closed below 43 to the dollar was on Oct. 8, 1998 when it finished at 43.385 to the dollar.

The peso ended the day 49 centavos lower compared to Wednesday's close of 42.91 to the dollar as volume of transactions soared to a staggering $206.70 million from only $119.3 million the previous day.

Traders said the peso could have recovered yesterday as this already hit a high of 42.80 to the dollar during mid-day trading at the Philippine Dealing System (PDS). But news reports five minutes before trading ended that a Philippine Airlines (PAL) plane bound for Manila from Davao had been hi-jacked unnerved jittery investors, causing them to increase their dollars holdings.

"At around 3:55 p.m., news of the hi-jacking unnerved some investors," a trader from a local bank said. "One or two transactions were done at 43.40 to the dollar just in time for the closing of the market at four in the afternoon," he added.

The peso averaged at 43.159 or 41 centavos lower than Wednesday's average of 42.749 to the dollar.

"It's a continuation of the trend yesterday. There's a lot of buyers (of dollars) in the market so the way it is moving now, I think initially 44 can easily be reached," a trader at a bank said.

In light of the continued deterioration of the peso, the BSP is set to investigate the foreign exchange transactions of banks, according to BSP Gov. Rafael B. Buenaventura.

"We are looking at the possibility that some banks have speculated. We will review some of their foreign exchange transactions because some banks might have abused it. This is what we have been told," he said.

The BSP is ready to slap penalties on erring banks, including higher monetary fines provided for under the law.

Buenaventura said he has been talking to banks, appealing to them to be "a little bit more circumspect" in their foreign exchange transactions.

Currency traders said the BSP has required them to submit a detailed report after each trading day, indicating every transaction.

Among the information required, they said, include the names of those who bought the dollars, the amount, and how the dollars will be used.

Meanwhile, the influential Bankers Association of the Philippines (BSP) said it is supporting the BSP's move to increase its key policy rates by another half a percentage point to protect the peso from speculative attacks.

BAP chief economist Johnny Noe Ravalo said "we support it (BSP's move)" but added that "this would cost the government and the public."

Ravalo said the government should watch out for the impact of these interest rate increases to inflation, importation and the economy in general.