December 28, 2006 Thursday
Closes at 49.195 to $1 and may reach 48 level soon.
The peso on Wednesday rallied to its highest in nearly six years at 49.185 before closing at 49.195 to a dollar on the arrival of overseas remittances and investment inflows after the four-day Christmas holiday break.
The local currency would have gained more if not for some open market involvement by the Bangko Sentral ng Pilipinas (BSP), currency traders said. The Philippine central bank was believed to have bought dollars at 49.20 to stem the peso's sharp appreciation at the Philippine Dealing System.
Wednesday's peak was the highest reached by the peso since touching 49.14 on March 28, 2001. The closing rate of 49.195 was also the strongest finish since ending at 49.16 on March 27, 2001.
A strong regional currency market, supported by the Thai baht's rebound against the dollar, also helped keep the local currency floating.
The Bank of Thailand was forced to partially overturn capital control measures after the Thai stock market plunged 15 percent last week, but investors remained wary of that country, the epicenter of the Asian currency turmoil of 1997.
This developed as the Bangko Sentral ng Pilipinas reaffirmed its commitment to a market-oriented approach to capital flows in the aftermath of Thailand's recent bold moves to curb the appreciation of the baht, Asia's strongest currency this year.
"We consider foreign flows as an important, in fact, a critical ingredient to sustain economic growth," BSP Deputy Governor Diwa Guinigundo said. "There's no viable substitute to market-oriented approach to capital account transactions," he said.
Before the long Christmas break, the peso also gained from some offshore investors switching to assets in other Asian currencies following the Thai scare.
Marcelo Ayes, senior vice president at Rizal Commercial Banking Corp., said Wednesday that the peso could break into the 48:$1 level in the next few days. "There's no way to go but up," Ayes said.
Aside from remittances from overseas Filipino workers, which seasonally remain strong until early January, prospective foreign investments inflows are keeping the market bullish on the peso.
Ayes said the payment for the purchase by the First Pacific group in local telecommunications giant Philippine Long Distance Telephone Co. would again flood the market with dollars before the year ends or early next year.
Guinigundo said the government was confident that the Philippines' improving economic fundamentals would sustain investor interest while maintaining a free market.
"If we are convinced that what we're doing is right and what we're seeing in terms of macroeconomic fundamentals is good then by all means let the market decide for itself. Let the market review the emerging situation and see the durability of various economic reforms we have undertaken especially in the fiscal sector," Guinigundo said.
"To us, the flexible exchange rate system remains the appropriate mechanism for determining not only resource allocation but also capital flows. If you look at the exchange and how it's doing, you know it's flexible and there's no moral hazard there, unlike before when the peso's movement is likened to the heart of a rock," he explained.
Guinigundo also explained that the Philippines was nowhere near the danger zone as it was still in the very early stages of a boom cycle.
He noted that the main-share Philippine Stock Exchange composite index was still around the 2,800 levels as against the historic high of 3,400 during the pre-Asian crisis regime. Neither is the country nearing an asset price bubble, with real estate prices, though on an uptrend, were still too low relative to pre-crisis levels.
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