A MOVE BY BSP CAUSES PESO TO RECOVER, CLOSES AT 54.95 TO $1
MANILA, September 11, 2003 (STAR) By Des Ferriols - The move of the Bangko Sentral ng Pilipinas (BSP) to bar residents from buying dollars to purchase dollar-denominated bonds caused the peso to gain ground against the dollar yesterday, rising by 24.50 centavos to close at 54.950 from Tuesday’s close of 55.195 to the greenback.
Volume of transaction at the Philippine Dealing System (PDS) was heavy at $224.50 million as investors unloaded their dollar holdings in reaction to the BSP circular.
The peso opened at 55.200 before hitting a low 55.220 and a high of 54.940 to $1.
Traders said the market was spooked by a circular issued by the BSP which restricted the use of dollars bought from the spot market and prohibited individual investors from using these to invest in dollar-denominated bonds.
A trader said the market took this as an indication that the BSP was quietly returning to the old regime of capital controls where investors would be required to report all their investments and the use of dollars would be severely curtailed.
However, BSP Governor Rafael B. Buenaventura said the move was not a form of capital control to support the flagging peso.
He said the BSP circular would allow banks and importers to buy dollars for a "productive activity" such as shipping in machinery or other materials.
"We’re just trying to plug loopholes," he said.
Under the new provision, local investors cannot finance their investments in dollar-denominated Philippine sovereign bonds (ROPs) by buying dollars in the spot market. ROPs are debt papers issued by the government to finance its budget deficit and pay maturing debt.
Buenaventura also said that the recovery of the peso was due in part to the statement issued by Peso recover.
Malacanang yesterday, placating the market for the mixed signals over its security concerns.
"There was also some dollar inflows from overseas workers that eased the pressure somewhat," he said.
Finance Secretary Jose Isidro Camacho, on the other hand, said the peso movements was due more to the sensitivity of local investors because foreign investors are more circumspect in their decision-making.
"We are paying a high premium for all the political noise we are generating," Camacho said. "It will go away. These issues are domestic and the domestic market is much more affected by all this noise than the foreign market."
Buenaventura said he hopes to see the peso settling at a level of 54 to 54.50 to the dollar by the end of the year as political concerns ebb and monetary authorities move to tackle speculators.
The peso has been hovering near its historic low of 55.75 to the dollar, the level seen two and a half years ago when a popular revolt toppled then president Joseph Estrada.
In a forum with the Foreign Correspondents Association of the Philippines, Buenaventura said he expects the peso to recover later in the year with the 54 level "a good number to look at."
Buenaventura remarked that the peso should really be at 52 to 54 to the dollar and would be except largely for "non-economic events" such as the July 27 failed mutiny and continued fears of further destabilization attempts being mounted against the government.
He also cited a court ruling suspending him and other central bank officials last month which had rattled investor confidence even though he and the other officials still remain at their posts.
The ruling is being appealed and Buenaventura said he is confident that he would complete his term as central bank chief in the 22 months.
He reiterated that the country still enjoyed good macro-economic fundamentals despite the political issues it faces.
Buenaventura also cited seasonal factors such as an upturn in imports and a traditional drop in remittances from the millions of Filipinos working overseas as further pulling down the peso in August and September.
However, these factors will pass as imports traditionally slow down and remittances increase in the last months of the year.
"Clearly there is no panic in the market," Buenaventura said, adding that the BSP was ready to intervene to stabilize the exchange rate in case of sharp swings caused by non-economic concerns.
President Arroyo, in a statement, said she was also confident that monetary authorities had enough powers to arrest the peso’s slide.
The President blamed the peso’s weakness on "mild transient shocks occasioned by politicking and destabilization attempts", referring to corruption allegations against her family the failed coup.
Buenaventura said the BSP would not use its foreign reserves to prop up the local currency.
The BSP, which borrowed $500 million earlier this year, was scheduled to borrow another $500 million before the end of 2003 to further bolster its foreign exchange reserves and boost confidence.
The BSP chief expressed optimism that the political worries which have weighed down the currency will eventually pass but conceded that this will be a gradual process.
"Only time will cure that," Buenaventura remarked.
He also cited a decision last month to remove a three-tiered system for banks’ placements with the central bank, a move which was intended to "siphon off excess liquidity in the system," so cutting back on funds available for speculation against the currency.
To further bolster the peso, Buenaventura called on the Congress to strengthen laws against dollar speculation. Existing laws only impose small fines on offending institutions.
President Arroyo expressed confidence the country is recovering from its political shocks.
"We have gradually pulled the nation back on track and there is no cause for undue concern," she said, adding that "our people are undeterred in their will to resist destabilization and sustain enterprise and constructive activities."
Reported by: Sol Jose Vanzi
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