Peso weakens, moves closer to 55-to-dollar

The peso is edging closer to the 55- to-a-dollar level as heavy demand for the greenback pressed the peso down to close at 54.94 to $1 on heavy trading.

The peso opened at 54.70 yesterday at the Philippine Dealing System (PDS) and proceeded to drop to its lowest point where it ended the day, 17 centavos lower than Wednesday’s close of 54.77 to $1.

The market saw heavy dollar-buying from the equities and manufacturing sector, pushing the exchange rate down and closer to the 55-to-a-dollar level after rising above the 53 to $1 level earlier in March.

The Bangko Sentral ng Pilipinas (BSP) said the peso weakened due to heavy demand for the dollar.

BSP Deputy Governor Amando M. Tetangco, however, said the demand was confined to equities and manufacturing firms.

Volume of trade was high, with $376 million worth of trade recorded during the day’s session as banks combined profit-taking with the reduction of their short positions.

After slowly picking up strength over the past few weeks, monetary officials had foreseen that the peso could still lose its footing depending on whether Congress will be able to legislate the new law on value added tax (VAT).

The BSP said investors are closely watching the on-going deliberations in both houses of Congress since it would spell the difference in the government’s deficit and debt reduction program.

"If the VAT adjustment does not happen, the peso will fall again," said BSP Governor Rafael B. Buenaventura. "The reason we are getting all this attention now is because of the initial public offers in the market and the improvements in our prospects."

The growing optimism about Philippine prospects, according to Buenaventura still hangs in the balance between what has already been achieved by the Arroyo administration and the reforms that still have to be accomplished.