The peso was at its lowest in more than five years at the close of Monday’s trading, having lost 31.5 centavos at the local currencies market to 46.815 per dollar, its weakness attributed to a global rout that, in turn, was traced to a suspected deepening of economic malaise in China.
Nevertheless, the Bangko Sentral ng Pilipinas (BSP) allowed the local currency to adjust to market conditions and refused to make its presence felt at the Philippine Dealing System (PDS).
Data from the PDS show that the peso shed about a third of its last traded rate from a week earlier, when a holiday shortened the trading week by a day.
The total traded volume aggregated only $572.5 million from the $699.7 million on Thursday last week. The peso’s weakness was attributed by one currencies trader to global developments and to the accumulated reaction of the market unable to trade last Friday, which was a national holiday.
“The local financial markets have recently been greatly affected by external developments, including the shift in the Chinese yuan to a more market-influenced foreign exchange system, further declines in international oil prices, as well as the market interpretations of the intentions of the US Fed Reserve on the path and timing of its policy normalization. With the interconnectedness of global goods and financial markets, the local financial markets are often the first to reflect any external developments onshore,” BSP Governor Amando M. Tetangco Jr. told reporters on Monday.
“Peso was trading pretty much in line with the rest of the region, although the move may look more drastic than the rest because of the holiday ‘catch down.’ Its total risk-off sentiment right now and panic, fear and hysteria have taken over. Investors have turned overly bearish on the market, dumping risk assets as attention has turned to the slowdown in China and its possible effects on the global economy,” Bank of the Philippine Islands (BPI) research officer Nicholas Antonio Mapa said in response to the BusinessMirror query.
The Philippine Stock Exchange (PSE) index also traded in the reds on Monday, wiping the gains of 2015, and closed 6.7 percent lower.
Tetangco said the central bank will intervene only for purposes of taking out excessive swings at the foreign-exchange market.
“The near-term outlook continues to be that of more volatility in both the global and local financial markets because of these factors. Given that these [factors] are largely outside of our direct control, the BSP will continue to allow the exchange rate to adjust to market conditions, but, at the same time, carefully provide liquidity in the market should the exchange-rate volatilities become 1) excessive; 2) disruptive to business planning; and 3) a trigger for the disanchoring of inflation expectations,” Tetangco said.
“So far, the peso volatility has remained within the middle of the range of the volatilities of regional currencies; and inflation expectations are still well-anchored,” he added.
Earlier, banking giant DBS Bank said in a research note that the BSP is seen to be more tolerating of a weaker peso to support the normalization of inflation rate in the months to come.
Still above the pack
Despite the slump, the peso was still seen stronger relative to other Asian emerging economies who also took a beating on Monday.
“Despite today’s sharp move, the peso remains the top performer in the region given our superior external account and growth dynamics,” BPI’s Mapa said.
“Peso’s outperformance is a result of favorable economic fundamentals including strong structural inflows —a resilient OFW remittance flow and growing outsourcing sector; relatively good economic growth with acceleration in government spending and a strong domestic demand sector which offset weak agriculture and export sector,” ING Bank Manila economist Joey Cuyegkeng also said in his reactions statement.
BSP Deputy Governor for the Monetary Stability Sector Diwa C. Guinigundo said market players should remain calm as the macroeconomic underpinnings of the Philippines remains sound.
1 comment
If you are a currency investor, sell pesos and keep dollars. The peso is going to 50 to US$1.