(STAR) By Des Ferriols - The peso broke into the 43-to-$1 level yesterday, closing at its highest rate in more than seven years at 43.850 to $1 as investors unloaded their dollars in anticipation of a US Federal Reserve rate cut this week and further cuts in the coming months.

Yesterday’s close was the highest since July 5, 2000 when the peso touched 43.690 to $1 and was 21 centavos higher than Friday’s close of 44.060 to $1.

At the Philippine Dealing System (PDS), the peso opened at 44.030 before hitting a high of 43.850 and a low of 44.030. Trading volume amounted to $666.10 million on an average rate of 43.947 to $1.

The peso has gained nearly 11.50 percent against the dollar so far this year, second only to the Indian rupee.

Traders said the Bangko Sentral ng Pilipinas (BSP) has been buying dollars in the currency market to limit the continued appreciation of the peso.

They said that were it not for this intervention, the peso would have surged to as high as 43.75 to the dollar.

The BSP, however, would not admit how far it intervened yesterday but officials said that the central bank could only do so much to sway the market.

According to BSP Deputy Governor Diwa Guinigundo, the central bank is only supposed to smoothen the volatility of the exchange rate since the pace of peso appreciation or depreciation was always a concern.

“But you have to keep in mind that the volume of transaction in the currency market today is much larger than in the past,” Guinigundo said.

“It would require a much larger ‘signal’ from the BSP before it can actually sway the market,” he said. “But the bottom line is that we are here only to mitigate volatility.”Even at this level, however, Guinigundo said the foreign exchange rate still had a net positive impact on the economy, saying that there were stabilizing factors that mitigate the negative impact of the strong peso.

“At present dynamics, a strong peso inspires confidence on the economy,” he said. “There might be a perceived negative impact on exports, for example but it is never a direct one-to-one correspondence.”

According to Guinigundo, the apparent slowdown in exports could not be attributed to the strength of the peso since other currencies are also appreciating.

The families of overseas Filipinos have been complaining on the impact of the strong peso on their household income but Guinigundo said the percentage of OFWs paid in the weakening US dollar was actually significantly smaller than perceived.

“It appears that about 51 percent of OFW remittances are in dollars merely because they are remitted through the US financial system,” he said. “But in truth, only a small portion of funds remitted by OFWs through the US are in dollars.”

“The bulk of the remittances are actually in the domestic currencies of the originating country,” he added.

Chief News Editor: Sol Jose Vanzi

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