Peso hits new 5-year high

Posted at 01/16/13 8:35 AM

MANILA, Philippines - The peso surged to its fourth record performance this year, closing yesterday at its best in nearly five years on the back of strong positive sentiment to the local economy and as the central bank reiterated its exchange rate policy.

The local unit closed at 40.57 to a dollar, nine centavos stronger than its 40.66 close last Monday. During the trading, it nearly beat its benchmark performance of 40.56 hit last March 6, 2008.

Trading was contained between 40.55 and 40.61 to a dollar yesterday. Total transactions reached $1.051 billion, almost double the $554.6 million recorded a day before.

“The sentiment is for the peso to further appreciate. There is nothing new here. Basically, investors are still positive on the country on expectations of strong growth,” a local bank trader said in a phone interview.

The peso, Asia’s second best performing currency against the greenback last year, weakened last Monday as investors pocket in gains in the latter part of afternoon trading. However, the trader said foreign inflows remained high.

Demand for peso increases when foreign inflows swamp the economy through the local financial markets. When demand rises, the currency strengthens. A strong peso trims the value of dollar earnings and remittances.

The Bangko Sentral ng Pilipinas (BSP), which were bombarded with calls to do more to temper peso’s strength, maintained yesterday its stance of merely seeing to it that sharp currency movements are avoided.

“We recognize that the recent appreciation of the peso can be attributed to both structural and speculative flows,” BSP Governor Amando Tetangco Jr. said in a statement.

“However, because going against fundamentally driven flows through restrictive policies would be imprudent, the BSP has focused on containing speculative flows,” he added.

Speculative flows are characterized by inflows in the financial markets which can enter and exit freely any time. Structural flows, on the other hand, are those in the form of export and other businesses’ earnings and remittances.

Tetangco said “market-based policies” were put in place last year to shun speculative flows, including a ban on foreign inflows on special deposit accounts and a cap on non-deliverable forwards banks may hold.