Peso weakens anew, closes at 49.25 to $1

After staging a dramatic rebound against the dollar last Monday, the peso weakened anew yesterday closing at 49.25 against the dollar or a loss of P1.20 from Monday’s close of 48.05 to $1.

Bangko Sentral ng Pilipinas Governor Rafael B. Buenaventura said the peso-dollar rate merely corrected yesterday.

He admitted that the peso’s strong performance last Monday was probably an "overreaction". Even regional currencies, specifically the Thai baht, corrected yesterday.

Buenaventura said the BSP stayed out of the market yesterday, but traders claimed otherwise.

Foreign exchange traders attributed the slide of the peso to reports that President Estrada has decided to dig in and to fight his impeachment case in Congress.

Thus, traders said, after the perception over the weekend that Mr. Estrada would soon give in to calls for his resignation, the market is now getting signals that the political turmoil will continue to stretch out for a while longer. However, Buenaventura brushed aside such observations, saying "they’re putting too much political color into everything."

The slide of the peso is in contrast to the continued upswing of the stock market and a stabilization of interest rates.

Forex traders claimed that the BSP presence was felt in the market through an intermediary bank.

The BSP, traders said, unloaded about $20 to $30 reached P48.95 to $1.

The peso actually slipped to an intraday low of P49.37 to $1 before closing at P49.25 to the dollar. Volume turnover amounted to $134 million.

Analyst were clearly disturbed by the wide trading band of the peso as it indicates speculative play based on political developments. "Somebody is making money out of these swings," analysts said.

The BSP has been shutting off sources of possible speculative play. Buenaventura admitted that "during an emergency we close safety valves." He was referring to the decision of the Monetary Board of the BSP to prohibit engineer swaps wherein peso deposits are converted into dollars and are covered by a forward contract.

Buenaventura said that the negative reaction of some banks to the BSP’s move is an indication that it is working.

In fact, the prohibition of engineered swaps may have been a factor in the P2.95 appreciation of the peso Monday from a closing rate of P51 to $1 last Friday, to P48.05 to $1 Monday.

Meantime, Buenaventura said there may be no change in the overnight rate this week following the appreciation of the peso Monday.

The BSP, he said, would monitor developments first before contemplating another adjustment in overnight rates.