Peso shaken, markets stirred

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Posted: 11:24 PM | Jun. 13, 2006
Doris C. Dumlao and Elizabeth L. Sanchez
Inquirer

(Published on Page B1 of the June 14, 2006 issue of the Philippine Daily Inquirer)

THE COUNTRY YESTERDAY MARKED A DAY OF DECLINE ON the business front, brought on by prospects of additional US interest rate hikes.

Share prices yesterday closed 1.82 percent lower, while the peso dropped to its weakest level of 53.33:$1 this year.

Dealers said the downturn was made worse as the market on Monday was closed for a holiday, and was thus caught off-guard when Wall Street posted losses on both Friday and Monday.

Also, the regional markets were on edge over reports that the United States Federal reserve would increase its interest rate for the 17th time later this month.

The local currency opened at 53.25 and hit an intra-day low of 53.345 before closing at 53.33:$1, its lowest closing rate since ending at 53.40 against the greenback on Dec. 21 last year.

The peso, which has given up the sharp gains seen earlier this year, yesterday shed 16 centavos from Friday's closing of 53.17 against the greenback.

Currency traders said the foreign exchange market was not at all affected by the fresh bomb attacks in Metro Manila as much as reports that the US Fed is expected to continue its two-year monetary tightening campaign.

"The Philippines' good fundamentals are being dwarfed by external factors," said Banco de Oro Universal Bank strategist Jonathan Ravelas. "US interest rates have continued to rise, but are still below historic highs, so there's still room to head in that direction."

Ravelas noted that the US Fed's overnight rates had peaked at 6.75 percent in the 1970s.

A US Fed official earlier indicated that he was no longer comfortable with the inflation rate in the world's largest economy, boosting expectations that another quarter percentage hike could be inevitable during the next US Fed Open Market Committee meeting on June 29.

Ravelas noted that the Japanese yen and the euro had already tumbled against the US dollar overnight, as further interest rate increases by the US Fed would make the greenback more attractive.

"Given the fact that [the Bangko Sentral ng Pilipinas] won't raise interest rates for now, investors see the US dollar as a safe haven," Ravelas said.

But British bank Standard Chartered expects the BSP to hike its overnight borrowing rate by a quarter percentage to peak at 7.75 percent in the third quarter, given the country's strong consumer spending and liquidity growth.

The BSP has kept its overnight borrowing rate at 7.5 percent since October last year, after tightening its key policy rates for a total of 75 basis points in 2005 on top of a two-percentage increase in the reserve requirement.

At the Philippine Stock Exchange, the composite index lost 39.21 points at 2,120.29 points after trading between 2,111.55 and 2,159.50.

This was the composite index's lowest close in more than three months when, on March 13, it closed at 2,121.76.

Volume stood at 1.65 billion shares worth P1.94 billion ($36.5 million).

The broader all-shares index fell 20.30 points to 1,348.34, with all the sub-indices falling in the red.

Losers led gainers 77 to 15, while 30 stocks were unchanged.

Analysts said the local stock market this week would be held hostage by trends in global markets. With a report from AFP