MANILA, March 2, 2006
 (MALAYA) BY MAX ESTAYO - The Philippine Dealing System yesterday posted a record deal of $808.29 million at the peso spot market after the peso hit a 3.5 year high of 51.36 to the US dollar.

Traders yesterday said that the Bangko Sentral ng Pilipinas was buying back dollars it sold last Friday and Monday after President Arroyo declared a state of emergency.

Daily deal from February 21 had averaged at $600 million attesting to the heavy inflow of dollars.

Traders said money is flowing in the stock market where players see quick gains from the expected rebound from Friday’s jitters.

A couple of traders interviewed yesterday said that the BSP was in the market buying back dollars to control the peso’s volatility.

The peso yesterday fell to about 51.54 per dollar, retreating from a early peak of 51.36, its strongest since August 2002. but it rebounded to close at 51.38.

"It looks like there is some light profit-taking but market is looking to sell dollars on any rally," said Marcelo Ayes, head of currency trading at Equitable PCI Bank in Manila.

BSP Governor Amando Tetangco said he expected further support for the peso on the back of projections that the balance of payments would register a surplus this year.

"For this year, we are projecting a BOP surplus and with this I think there’s a reason to expect further support for the peso," Tetangco told reporters.

The BSP also upgraded its peso forecast for this year to 51-53 from 55-57 saying a stronger peso is supported by remittances and foreign inflows.

Tetangco said he expects the peso to improve this year notwithstanding the political noises.

Tetangco added the peso is also supported by export dollar sales and the recovery of regional currencies against the greenback.

The BSP presented the 51-53 forecast to the inter-agency Development Budget Coordination Committee technical working group meeting last Monday.

The DBCC, which sets the government’s economic targets, will decide whether to adopt the new peso assumptions.

The BSP was earlier reluctant to lift its projections, holding the 55-57 level this year from last year, noting that forecasts are subject to a number of variables that may change over time.

The peso averaged 55.03 last year, well ahead of the 55-57 band, due to record-level remittances and foreign inflows encouraged by the progress of the government’s fiscal reform program.

Meanwhile, for 2007-2010, the BSP set a forecast of 52-54, slightly higher than the forecast for 2006.

BSP officials said they decided to keep a wide range to narrow the room for market speculation against which the central bank will be forced to do open market operations like monetary tightening and increasing reserves on deposits.

BSP officials said the wide band also allows adjustments in variables that determine the actual exchange rate.

BSP deputy governor Diwa Guinigundo said the peso’s improvement is dependent on a number of factors and that surely the recent political episode is not a reason for the currency’s downward movement.

The President issued a proclamation on Feb. 24, the 20th anniversary of the bloodless EDSA 1 revolt that toppled the Marcos government, putting the whole country in a state of emergency.

Arroyo justified the rule, which some lawmakers and businessmen said is sending a "chilling effect" to investors, saying it will allow her to run after conspirators of coup plots as well as put control on restless forces including some members of the military that are opposed to her government.

Traders said market players are seeing through the fundamentals that’s why they were not reactionary to the fresh surge of political uncertainty.

Standard & Poor’s and Fitch Rating earlier this week said the latest crisis will not have a negative impact on the country’s ratings as it has been factored in.

The rating agencies, however, warned that a spillover into the implementation of the fiscal reforms may lead to a credit rating downgrade.

S&P and Fitch last month raised their outlook on the country’s rating to stable from negative while affirming the BB- and BB rating, three and two notches below investment grade, respectively.

The BSP’s 51-53 forecast is within most market players’ assumption of 52-53.50 for this year.

Chief News Editor: Sol Jose Vanzi

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