The peso weakened past the psychologically important barrier of 50 to a dollar yesterday, hitting an intraday low of 50.170 to $1 as the local financial markets turned jittery on mounting fears of a worldwide slowdown in economic activity.
Share prices were also down yesterday, tracking falls on Wall Street overnight amid weak US economic data.
The 30-company composite index tumbled 76.43 points to close at 1,765.90 points.
“We’re seeing heightened fears of recession everywhere,’’ said James Lago of PCCI Securities Brokers. ‘’Analysts are also looking at ratcheting down (earnings) forecasts for 2009,’’ he added.
At the close of trading, however, profit-taking propelled the peso to stage a mild recovery, closing 18 centavos higher at 49.820 from Thursday’s close of 49.999 to the dollar.
Traders said the recovery was largely fuelled by profit-taking which indicated that the peso is still packing some weakness that might push the exchange rate down to the psychological level of 50 to $1.
Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco Jr. said yesterday that dollar inflows from overseas Filipinos are coming in strong and the weakness of the peso is still due to risk-aversion among investors.
“The inflow of OF remittances is still substantial,” Tetangco said. “So this is still risk-aversion that is pushing the dollar down.”
Before the end of the year, Tetangco said the BSP expects the peso to recover somewhat, propelled by year-end inflows.
Tetangco said the currency market was only seeing the persistent effects of the financial turmoil overseas that he said was active not just in the Philippines but also in other emerging markets.
But Tetangco expressed optimism that there would be some let-up on the depreciation of the peso towards Christmas.
“In the case of the Philippines, usually the fourth quarter particularly the latter part of November and December, you’ll see an increase in remittances,” Tetangco said. “I think, as remittances find their way into the system, you will see support for the peso.”
The peso had ended 2007 at 41.52 to the dollar but frightened foreign portfolio investors have been stampeding out of the Philippine market since the beginning of the year, causing heavy dollar outflows that depressed the peso.
In 2007, the peso appreciated by 18 percent against the dollar because of heavy foreign exchange inflows but the currency has lost everything that it gained last year, depreciating by 18.9 percent so far this year.
Central bank officials have been saying that the peso was packing some strength because of continued dollar support from overseas Filipinos but even the 18-percent increase in dollar remittances was not enough to shield the currency from the negative effects of market panic.