War jitters pull peso down to two-year low of 54.10 to $1

The peso tumbled to a fresh two-year low of 54.10 to $1 in early trading yesterday but recovered slightly at the end of session to close at 53.94, slightly higher than Thursday’s close of 53.98.

Yesterday’s drop was the peso’s weakest intraday low since Jan. 19, 2001 when it went down to 54.40 to the greenback.

Traders said that growing concerns over the likelihood of war in the Middle East, where about 1.4 million Filipinos work, have added to the pressure on the peso which has been on a steep downtrend since May 2002.

The peso’s continued slide prompted suspicious monetary officials to step into the fray to prop up the peso against what they suspected as dollar hoarding.

Currency traders said the Bangko Sentral ng Pilipinas (BSP) was in the market for at least 52 to 57 percent of the total volume recorded by the Philippine Dealing System at $156.5 million, compared to the average trading volume of $50 million to $60 million in the past two weeks.

Market sources said the BSP intervened through its usual conduits Chase Manhattan and Standard Chartered Bank, which deftly controlled the peso’s downhill drift.

BSP deputy governor Armando Tetangco, however, declined to comment specifically on yesterday’s trade, saying instead that "our exchange rate policy — which is allowing market forces to determine the value of the peso — remains."

"The situation is something temporary," he assured,!2And as soon as everyone will have a clearer picture of what is happening in the Middle East, the exchange rate will start to appreciate anew."

He identified oil companies, telecommunications firms and other commercial companies as the sources of pressure for the peso’s drop, saying that these entities, particularly the oil firms need to increase their inventory as mandated by the Department of Energy as a contingency measure in case the US-Iraq conflict escalates.

"These oil companies need additional dollars to purchase the required supply," he said.

Tetangco, however, brushed aside reports that the exchange rate would reach as much as P60 to P70 within the year.

"It will not reach that level even with the present circumstances," he stressed.

Not to worry

Finance Secretary Jose Isidro Camacho, however, said that there is nothing to worry about as the country’s dollar reserve is still at a comfortable level of $16.4 billion.

"We have a full war chest, nothing to worry. We have a healthy reserve," he told reporters during yesterday’s yearend economic briefing in Davao City.

The finance chief said that with the situation in Iraq, it is understandable that certain groups would hold back on their dollars while they asses the situation.

"The BSP has adhered to its policy of allowing market demands to dictate the exchange rate level under the present circumstances but certain measures are also implemented to safeguard the movement of the peso," Camacho said.

He warned though that the government would "look unkindly" on banks that may be adding pressure on the peso.

"Their behavior would be considered in our relationship," Camacho said. "We have to make sure that the exchange rate reflects the law of supply and demand."

The BSP also announced yesterday that it would assign examiners to forex traders to ensure that they could justify their trades. — With reports from Edith Regalado, Marichu Villanueva, AFP