THE peso closed to a fresh year low against the US dollar on Wednesday, with trading volume doubling amid suspicion the Bangko Sentral ng Pilipinas (BSP) was in the market to temper the local currency’s rise.
At the Philippine Dealing System, the peso closed at 46.45 against the greenback, stronger than Tuesday’s finish at 46.475.
The general weakness of the US dollar following a high unemployment rate and low manufacturing output in the world’s biggest economy propped up Asian currencies, including the peso, which has enjoyed a run up in the last two months.
“There was heavy selling the whole day. All signs are pointing to a weaker dollar,” a trader said.
Trading stayed within a narrow band, with the local currency opening at 46.45 and trading to a high of 46.500 and a low of 46.430.
Trading volume surged to $1.200 billion from the previous day’s $647 million.
“It was a bearish week, as the US dollar [was] continuously pressured on the back of a rise in risk appetite, hit the year’s low of 46.45. However, the BSP was seen stalling weakness in the pairing,” Metropolitan Bank and Trust Co. (Metrobank) said in a commentary.
“There will still be bearish sentiment for the US dollar from a rise in risk appetite. The peso will likewise be benefiting from possible fund flows and remittances,” Metrobank added.
The bank saw the local currency trading within the range of 46.100 to 47.100 this week.
During the government’s Mid-Year Economic Briefing, the BSP said the favorable inflation outlook would provide it flexibility with regards its monetary stance.
“The inflation outlook continues to be favorable. Conditions on the demand side, credit activity and what we see in the real sector together with [a] favorable inflation outlook give us room to maintain [our] stance on monetary policy at this point,” BSP Governor Amando Tetangco, Jr. said.
“We can still maintain [the] current monetary stance. In other words, while we think about exit strategies, it is not yet the time to implement the exit strategy,” he told reporters.
He said there is enough headroom in case inflation picks up given the surge in prices of vegetables and other items on the heels of typhoons Ondoy and Pepeng. “We have enough headroom relative to [the] inflation target for 2009 to 2010,” he said.
The BSP expects inflation to reach 3 percent this year, or within its target of 2.5 percent to 4.5 percent. For next year, inflation could reach 3.4 percent, or still within the central bank’s target of 3.5 percent to 5.5 percent.
The BSP has kept its interest rates steady since July after cutting them by a combined 200 basis points starting December last year.
Its overnight borrowing and lending rates now stand at record lows of 4 percent and 6 percent, respectively.
The US Federal Reserve said last Friday that it would be ready to tighten monetary policy once the economic outlook improves sufficiently. This raised fears that the US central bank was closer to hiking interest rates than previously thought, causing the dollar to strengthen on Monday.
