PESO SLUMPS TO 45.31:$1
MANILA, AUGUST 16, 2008 (STAR) By Des Ferriols - The peso stumbled again yesterday, weighed down by huge demand for the US dollar as businesses filled up their requirements ahead of the year’s major import season.
The peso closed below the 45:$1 mark yesterday, ending a turbulent day at P45.31 to the US dollar after hitting a four-month low the previous day at P44.975 to the dollar.
Trading was heavy at the Philippine Dealing System with total volume recorded at $1.122 billion. The session saw the steady decline of the peso although it surprised no one, considering the US dollar has been picking up momentum.
The largest factor that set back the peso yesterday, according to analysts, was the commercial demand for the US dollar as the country entered the third quarter of the year when imports are normally the heaviest.
Importation picks up this time of the year as manufacturers and merchandize traders build up inventory ahead of the holiday season in the last quarter.
The weight of strong demand for the dollar was aggravated by slow inflows of foreign portfolio and direct investments that even record-high remittances from overseas Filipinos could not offset.
This year, the central bank said it expected total remittances to reach $16 billion. But this might not be enough to offset huge outflows of portfolio investments that reached nearly $400 million in the first seven months of the year, from last year’s net inflow of almost $2 billion over the same period.
Moreover, the central bank was also expecting a trade deficit of over $11 billion, leaving very little room for the peso to even come close to last year’s performance when it appreciated by 18 percent.
Merrill Lynch earlier said it expected the Philippine peso to stand at P44.50 by the end of 2008, strengthening to P44 early next year before dropping to P45.50 by the end of 2009.
Merrill Lynch said it expected the Asian foreign exchange markets to stabilize with the US dollar generally moving lower against most Asian currencies including the peso.
“The US dollar move is probably overextended in the short run,” Merrill Lynch said. “Many Asian central banks have sold dollars into this position unwinding.”
Merrill Lynch said the markets also seem to have ignored the positive impact of lower oil prices despite the fact that the recent correction in crude prices has reduced the region’s oil import bill significantly.
“In our view, markets are overreacting to growth concerns, while inflation remains an issue,” Merrill Lynch said.
It said the BSP should have “some success” in stemming the weakening of the peso, however.
Economists have long expected that besides the rapid increase in inflation, the falling peso and declining dollar reserves would pressure the central bank into tightening further its monetary policies for the rest of the year.
Chief News Editor: Sol Jose Vanzi
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