Analysts said investors largely brushed aside President Arroyo’s declaration of a national emergency which is likely to remain in place after a tense military standoff at the weekend.
"As long as the political environment in the Philippines continues to stabilize then the current threat to the leadership should diminish and the currency can drift back to stronger levels," said Sean Callow, a currency strategist at Westpac Banking Corp. in Singapore. "It’s going to need fresh negative news to take the peso lower."
The peso opened weak at 52.30 to a dollar but recovered a the end of the trading session to close 24 centavos higher at 51.96 from Friday’s close of 52.20 to $1.
The peso recorded its biggest decline since July 2002 on Feb. 24 as the President declared a state of emergency amid a military plot against her.
Trading volume was heavy at $628.10 million on an average rate of 52.088 to the dollar.
At the Philippine Stock Exchange (PSE), the composite index gained 19.43 points to settle at the day’s high of 2,089.36 after hitting a low of 2,058.36. The broader all shares index gained 7.85 points to 1,012.01.
"It appears that the incident that occured over the weekend didn’t shake and stir the market," Nestor Aguila of DA Market Securities said.
"People may be getting sick of all these changes in leadership," said Dilip Parameswaran, Hong Kong based head of Asian Credit research at Calyon, the securities arm of Credit Agricole SA. Friday’s fall represented a buying opportunity, he said, because "President Arroyo seems in control. The military is still with her."
While the Bangko Sentral ng Pilipinas (BSP) would not disclose its participation in yesterday’s trading, traders said the market was wary enough anyway, that the central bank would step in aggressively to prop up the peso.
Although the BSP’s official mandate is only to smoothen the volatility of the exchange rates, traders said the central bank had enough ammunition to step in anytime and step in strongly.
"It appears that the underlying sentiment continues to be positive for the peso despite the events in the last few days. Today (yesterday), the peso was supported by portfolio inflows, exporter dollar sales and OFW remittances," BSP Governor Amando Tetangco Jr said.
In its last balance of payment report, the BSP said the country’s international reserves stood at an all-time high of $20.504 billion as of January, due mostly to the $2.1-billion borrowing made by the Arroyo administration.
As a result, the balance of payments (BOP) hit strong surplus levels of $1.925 billion in January, up from a deficit of $277 million in 2004.
This meant that the BSP had enough dollars to dampen what it considered excessive pressure on the peso as it tries to "smoothen volatility".
As a matter of policy, the BSP never openly owns up to its market operations but Tetangco said the central bank was responsible for keeping volatility rates low and "ensuring that changes in exchange rates happen in an orderly fashion."
Traders agreed with the BSP that considering Sunday’s events, yesterday’s turn-out was still within "normal parameters" and the market is likely to remain on the defensive until things normalize.