(STAR) By Des Ferriols - Financial markets shrugged off yesterday the rising political noise as the peso rallied to its highest level in more than eight years due to strong inflows from investments and overseas Filipinos.

The peso gained by 14 centavos to close at its highest level in more than eight years of 40.330 from Tuesday’s finish of 40.470 to a dollar despite lingering concerns ahead of a planned protest on Friday to call for the ouster of President Arroyo over allegations of corruption.

“The exchange rate is being driven by market movements,” Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco Jr. said. “Today we saw strong inflows from remittances and portfolio investments.”

Yesterday’s performance of the peso was supported mainly by portfolio investments which also led to the rise in stock prices at the Philippine Stock Exchange (PSE) where the index rose 25.46 points with total trades amounting to P2.8 billion.

Since the economy is expected to sustain some level of strength, Tetangco said the market should no longer be surprised to see a strong peso this year.

According to Tetangco, the country’s economic fundamentals are stillpulling in both direct and portfolio investments and this would boost foreign exchange inflows already made robust by strong remittances from overseas Filipinos.

He also said the BSP would only intervene in the market to keep volatility down but otherwise, the peso would be left alone to seek its own market-determined level.

Political noise, notwithstanding, Tetangco said investors are largely aware that the country’s fundamentals are steady enough to be less vulnerable to uncertainty than it used to be in the past.

“We reiterate that our policy is not for a strong peso but for a market-determined exchange rate,” Tetangco said.

However, analysts said market sentiments point towards a globally weak dollar, especially after the bleak economic data that indicated rising inflation in the US, huge declines in housing sales and a sharp increase in foreclosures in the housing market.

“We should see more pressure on the US dollar should the political situation remain stable,” analysts said. “But a crisis on the political front may see the dollar stronger in the days ahead.’’

Thin trading volume

At the Philippine Stock Exchange (PSE), trading volume was thin amounting to only 1.2 billion shares worth P2.8 billion.

“We’re in a period of base-building. What we saw today (yesterday) is more of a consolidation,” said Gomer Tan of Regina Capital Development Corp.

“The underlying mood in the market remains cautious as reflected in the weak volumes,” he said.

“The current political noise may have started to become a factor in investment sentiment. It is starting to take its toll on investor psyche,” said Francisco Liboro of PCCI Securities.

Another surge in oil prices also added to investors’ tentativeness since this raises inflationary pressures and limits the flexibility of the BSP to keep cutting interest rates, said Jose Vistan, research director of AB Capital Securities.

On Tuesday, light, sweet crude rose $1.65 a barrel to $100.88 on the New York Mercantile Exchange.

Chief News Editor: Sol Jose Vanzi

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