MANILA, August 22, 2003  (STAR) By Des Ferriols  - The peso continued to plumb new lows yesterday, prompting Finance Secretary Jose Isidro Camacho to say that the currency may be depreciating too steeply, too fast.

At the Philippine Dealing System (PDS), the peso hit a new 31-month intraday low of 55.280 to the dollar after hitting record closing lows for the past two days.

At the closing, however, the peso managed to recover to settle at 55.265 to $1. But yesterday’s closing rate was still 7.50 centavos lower than Wednesday’s close of 55.190 to the dollar.

"There are fundamental reasons for the weakening of the peso, but it should not reach a level that we are seeing now," Camacho said.

These fundamental reasons stem from the onset of the import season and traditionally lower remittances from overseas Filipino workers (OFWs) at this time of the year, among others, Camacho said.

The lowest level ever hit by the peso was an intra-day low of 55.75 to the dollar in 2000, but it closed at around 47 to $1 on the same day. Since then, the peso has not breached the 55-to-$1 level until it started plummeting this week.

Trading reached $122 million as the peso opened weak at 55.185 to the dollar.

Camacho said lingering political and economic concerns after a failed military mutiny last month are also weighing on the peso, with investors hedging dollars on worries that the local currency will decline further.

Camacho said the recent Court of Appeals order to suspend Bangko Sentral ng Pilipinas (BSP) Governor Rafael B. Buenaventura and several subordinates over the closure of Urban Bank, the July 27 mutiny and "noises on the political front" are all serving to give investors the jitters.

The BSP maintained that yesterday’s close was a reflection of an increase in demand for the dollars as importers anticipate further depreciation and opted to beef up their reserves before the close of the week’s session.

BSP Deputy Governor Amando Tetangco Jr. said there was also some short-covering in the market.

Tetangco said the market was still hostage to the "high noise level" spawned by persistent rumors that Malacanang was out to remove Buenaventura as well as fears over political and security concerns.

Camacho said that the peso is now undervalued and the emerging exchange rate is not reflective of economic fundamentals. He declined, however, to give the peso’s correct valuation or say if the government is doing something to limit the fall.

"It’s the political noise that is doing this," Camacho said. "Ultimately, this noise would die down and the market would go back to fundamentals."

According to a trader from a foreign bank, however, the market was largely unsatisfied with the way the government is dealing with allegations that First Gentleman Miguel Arroyo had laundered campaign funds through the banking system.

As the budget deficit continued to decline, the trader said the market was still unnerved by the scandal which aggravated sentiments that were already shaky over Buenaventura’s impending one-year suspension.

"The sound macro-economic fundamentals are at present being swamped by the noise caused by non-economic factors," Tetangco said.

According to another trader, the market was "completely unnerved" by the revelations made by Sen. Panfilo Lacson who detailed the systematic diversion of campaign funds to secret bank accounts that he later linked to Mr. Arroyo.

The trader said that the Lacson report was a dramatic blow to the credibility of the Arroyo administration, especially considering its platform of good governance. "The market was totally spooked; the whole thing eats into the credibility of the administration" said the trader.

Reported by: Sol Jose Vanzi

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