MANILA, September 28, 2004 (STAR) By Des Ferriols - The peso dropped to record levels yesterday, closing at 56.45 against the dollar as demand for the greenback mounted amid increasing oil prices and the seasonal increase in importation ahead of the holiday season.

The peso has been relatively stable against the dollar in the last few weeks but month-end demand, combined with the seasonal fluctuation in importation and lower remittances from overseas workers, contributed to the overall weakness of the local currency.

The market has been anticipating an adjustment in the policy rates of the Bangko Sentral ng Pilipinas (BSP) but monetary officials have constantly ruled out this possibility, removing one of the primary causes of jitters in the currency market.

Despite these assurances, however, the peso closed at 56.45 to the dollar, plummeting from the 56.38 rate on Friday.

The currency opened at 56.39 and was traded between 56.39-56.45 on $155.5 million transactions.

BSP Deputy Governor Amando Tetangco Jr. said the peso weakened due to the downward pressure created by strong demand for the dollar.

"Part of it is seasonal, we see the combined effects of month-end and quarter-end demand from corporate dollar users," Tetangco said.

At the end of the month, importers normally shore up dollars from the spot market to pay for their regular imports. At the end of every quarter, importers with quarterly payments add to the pressure.

According to Tetangco, there was also a slight weakness in regional currencies, aggravating the weakness of the peso.

Officials said there was also a slight increase in the demand for dollars as manufacturers started their inventory buildup towards the holiday season.

The last time the peso traded this low was in June this year when it closed at 56.43 to the dollar as market sentiments deteriorated over political uncertainties and the government’s declining ability to handle its mounting debt burden.

The same concerns are still hounding the market, however, particularly worries over the country’s mounting debt obligations and the anticipated increase in deficit due to the debts of the National Power Corp.

On March 22 this year, the peso took a nosedive and closed at a new all-time low of 56.42 after the government missed its February deficit target.

This time around, traders said the market was also concerned about the emerging possibility of another deficit blow-out, particularly since the government finally decided to absorb some P600 billion worth of debt from the Napocor.

Reported by: Sol Jose Vanzi

All rights reserved