BACKLASH JITTERS ON POE DISQUALIFICATION PULL DOWN PESO
MANILA, January 20, 2004 (STAR) By Des Ferriols - The peso again slipped to near-record lows yesterday as the market anticipated a backlash on the possible disqualification of popular presidential candidate Fernando Poe Jr.
The peso closed at 55.65 to the dollar at the spot currency exchange, Philippine Dealing System, with total trade amounting to a hefty $174.7 million.
But the Bangko Sentral ng Pilipinas (BSP) attributed the weakness of the peso "to a confluence of factors in the market," including strong economic data from the United States which strengthened the dollar against most currencies.
As the hearing on the disqualification suit against Poe started at the Commission on Elections yesterday, peso trading opened with pessimism, with the exchange rate at 55.60 to $1.
The peso weakened further during the day and reached an intra-day low of 55.67 before going up slightly to close at 55.65. The highest the peso managed was 55.595 to the dollar.
BSP Governor Rafael Buenaventura said that aside from the inherent weakness of the peso at yesterday’s trade, the dollar itself was picking up strength on its own because US economic data have been unexpectedly good.
"Here, there are election jitters and as expected, it’s dampening sentiments," Buenaventura said.
He added that the market was rife with speculation on the public reaction if Poe were disqualified from the presidential race.
"Supposing he is disqualified, what will happen then?" Buenaventura asked. "These are the concerns that are weighing down the market and they are not new. We anticipated reactions to swing this way and have this effect on the peso."
Aside from the political factors, the BSP said there was also corporate demand for dollars which pressed down on the peso even more.
"It wouldn’t come as a surprise if the peso becomes edgy again," Buenaventura said.
For the whole of 2004, the BSP said the peso could weaken to as low as 56 to the dollar although monetary officials still clung to the hope that the currency would swing back to 54 to $1 depending on the outcome of the elections.
Revising its macro-economic targets for 2004, the BSP said the peso-dollar exchange rate was projected to trade within a wide range of 54 to $1 to 56 to $1, due to continuing political uncertainties that would linger throughout 2004.
He said the expected moderate increase in inflation reflected improved economic output as well as factors in oil price increases.
Buenaventura said the inflation target was based on the assumption that the peso would range between 54 and 56 to the dollar, a range described by the market as "wide enough to land a Boeing."
"We opted for a wide range because we are expecting a lot of uncertainty and political noise," Buenaventura said. "At the moment, we are already paying a premium of at least P2 just for political noise alone."
Reported by: Sol Jose Vanzi
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