Peso rise seen as orderly

Monetary officials said yesterday the appreciation of the peso against the dollar is orderly and is largely driven by the country’s strong economic fundamentals.

Yesterday, however, the market saw a mild correction due to profit-taking with the peso weakening to as low as 50.04 to the dollar at mid-session. The peso closed 13 centavos lower to 50.01 from Tuesday’s close of 49.88 to $1.

On Tuesday, the peso climbed to a new four-year high of 49.88 to the dollar, fueled by sustained foreign exchange inflows and a regional currency market anticipating cuts in the US interest rate.

BSP Governor Amando M. Tetangco Jr. said the volatility of the peso is still well within the range of regional volatility when compared to other Asian currencies.

"Our volatility has been in the middle of the volatility range against the US dollar," Tetangco said. "These currencies have all appreciated against the dollar. We are not exactly moving in isolation."

The market has been suspecting that the BSP had dipped into the market to cap the strength of the peso but central bank officials indicated there was little need for intervention.

"The exchange rate is price of peso per dollar and this is driven by the dynamics of the forex market which in turn reflects forex flows," said BSP Deputy Governor Diwa Guinigundo. "Looking at all these and the relatively modest standard deviation, one can still describe (the appreciation) as orderly."

Guinigundo said the peso-dollar exchange rate level was "not as important as the actual fundamentals driving the exchange rate process."

The BSP officials said the peso appreciation and general market behavior, so far, were being driven by optimism stemming from improving economic fundamentals.

Meanwhile, the peso is expected to strengthen within the 49.50 to a little over 50 to $1 level for the rest of the year.

Cielito F. Habito PhD., director of the Ateneo Center for Economic Research and Development (ACERD) and economic professor at the Ateneo de Manila University, said that the peso will remain at this range the rest of the year.

"I do not see the trend departing from where it is today," Habito said during the Eagle Watch economic and political presentation at the Ateneo Rockwell campus. The peso closed Tuesday at 49.88 to the dollar, its strongest level in four years.

Most economists and analysts said the peso is merely tracking the rest of the Asian currencies which have collectively strengthened versus the dollar. The peso, in fact, is still well below the 2001 benchmark.

Habito said that if the peso and the Philippine economy had the same confidence of the world economy as the rest of the regional currencies, "it (peso) would have easily floated at the 48.50 to 49.25 range."

In contrast, another school of thought is that the peso should be trading at the 53 to 54 level, if the Philippines wants to be at the purchasing power parity with global markets.

"Tracking the inflation level of the United States and Japanese economies, our major trading partners, our peso should be in that level to be consistent with their purchasing power," Habito said. – With Ted Torres