PESO PLUNGES TO NEW RECORD LOW OF 56.35:$1
MANILA, February 21, 2004 (STAR) By Des Ferriols - The peso closed to a new historic low of 56.35 to the dollar yesterday amid political concerns ahead of the May 10 presidential election and signs that the Bangko Sentral ng Pilipinas (BSP) will not take action to protect the currency.
The peso’s latest plunge surpassed the previous intra-day record low of 56.22 to the dollar on Jan. 29.
Trading at the Philippine Dealing System (PDS) opened with a strong downward momentum at 56.28 to $1, already breaching the previous all-time closing low of 56.20 recorded on Feb. 3.
At mid-day, the currency managed to hit an intra-day high of 56.26 before taking the final plunge to 56.35 to the dollar.
Trading was heavy at $195 million, up sharply from $95.50 million the previous day.
"I think what’s really driving the peso down is not only political concerns but also the BSP’s stance to let the peso find its own level," one dealer said.
The BSP decided Thursday against raising key interest rates to defend the local currency.
BSP Governor Rafael B. Buenaventura, however, brushed off the market jitters created by the continued weakening of the peso against the dollar.
"What’s wrong with the all-time low," asked Buenaventura. "The more significant number is the year-to date average."
As of Feb 19, the peso averaged at 55.766 to the dollar, still stronger than the projected whole-year average range of 54 to 56 to the dollar.
Even if the exchange rate hit a new all-time low of 56.35 to $1, Buenaventura said this number was not significant from the standpoint of volatility.
"What we don’t want to see is the drastic decline in the exchange rate," Buenaventura said.
President Arroyo, who earlier dismissed the weakening of the peso against the dollar as a "temporary setback" due to rising political concerns appealed yesterday for the "highest statesmanship" among all political leaders and contenders.
"Even as we carry out the contest for power, we must always keep the supreme interest of the people in mind," the President said.
The peso has been weakening since late last year after movie star Fernando Poe announced he was running for president.
Surveys have since shown him leading the presidential race, easily besting incumbent President Arroyo.
However, Poe’s strength has spooked the business community which is concerned over his lack of formal education and inexperience in public service.
Poe has also declined to give the details of his economic platform, fueling even more uncertainty.
The Supreme Court has been conducting hearings into a petition by Poe opponents to disqualify him from the elections on the grounds that he is not a natural born Filipino and this has raised fears that his followers may stage violent street disruptions in turn.
Song Seng Wun, analyst of Singapore-based GK Goh Securities said "politics is the determining issue" for the peso’s fall although worries over the balance of payments are worsening the situation.
If politics continues to predominate, it might be useless for the central bank to try to prop the peso up, Song said.
"They might be wasting ammunition when sentiment is so against the peso so you might as well save the bullets for a more decisive move," he remarked.
"The central bank is caught in the middle ... If they know for certain the outcome, they could act but at this point the overall political landscape is rather fluid."
He said the central bank may be concerned that raising interest rates could stifle economic growth but may have to step in if the peso continues to weaken. –With reports from Marichu Villanueva
Reported by: Sol Jose Vanzi
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