Camacho resignation rattles markets

The peso dropped to a three-year low of 55.70 to the dollar during intra-day trading yesterday even as rates for the bellwether 91-day Treasury bill (T-bills) rose in reaction to the resignation of Finance Secretary Jose Isidro Camacho.

The peso, however, managed to recover, closing at 55.56 to the greenback compared to its close of 55.58 to $1 on Friday.

Bangko Sentral ng Pilipinas (BSP) Governor Rafael B. Buenaventura said the peso’s fall was temporary and the BSP was not intervening at the moment to defend the currency.

"For now no, I don’t think we need to," Buenaventura said. "Our economic fundamentals remain sound. People must have to be convinced that the economic reforms remain and the budget deficit reduction efforts will be sustained," he said.

The weakening peso found some support at 55.70, and traders suspected the BSP as selling dollars.

Total trades amounted to $118 million on an average rate of 55.649 to the dollar.

Dealers said the BSP sold $30 million in the spot market yesterday, less than half the volume in early morning trades to prevent the peso from falling past 55.70 to the greenback.

The peso has been one of Asia’s weakest currencies this year, dogged by worries over the budget deficit and political crises, and the latest development raised the policy uncertainty, analysts said.

Camacho, who won investor plaudits for keeping the country’s budget deficit and ballooning debt in check, said he was exhausted and would leave the job at the end of the month.

The announcement weakened the peso and widened spreads on Philippine sovereign bond spreads on Friday as investors worried about a deterioration in the fragile fiscal situation ahead of presidential elections in May.

At the Bureau of Treasury (BTr), interest rates on government securities went up across the board, leading up to a full rejection on the 365-day T-bill rates where rates would have gone up by over 50 basis points.

Rates for the 91-day T-bills went up by 27 points to 6.532 percent, inching closer to the BSP’s overnight rate of 6.75 percent.

The rate on the 182-day T-bills, on the other hand, went up by 16.5 basis points to 7.586 percent while the rate on the one-year T-bills would have gone up to 7.884 percent had the bids been accepted by the BTr.

"The market is testing us," Deputy Treasurer Mina Figueroa said. "I think the concerns of the market revolved around the resignation of Secretary Camacho and the worry over FPJ (Fernando Poe Jr)," she added.

According to Figueroa, the BTr would proceed with the planned issuance of retail treasury bond (RTB) on Thursday despite yesterday’s uptick in interest rates.

The BTr hopes to raise P30 billion or more for its budget deficit financing needs from the RTB issue. In the past, the Treasury has raised more than double the original size of its RTB issues.

"I hope we don’t have to accept that much," Figueroa said.