The peso rose marginally higher against the dollar at the close of trading yesterday that was dominated by talk of heavy central bank intervention in an attempt to ward off market panic with the closure of a local commercial bank Wednesday, traders said.
The peso closed at 41.28 to the dollar yesterday, a two-centavo gain from Thursday's close of 41.30 to the dollar.
A major local bank trader said the central bank indirectly sold dollars through a US bank and local bank in an effort to keep bids lower than 41.280.
Traders said the central bank easily accounted for about 90 percent of the volume turnover at the Philippine Dealing System, which reached $136.9 million from $123.8 million Thursday.
Central bank officials were not immediately available to comment but central bank Governor Rafael Buenaventura has consistently denied any form of intervention in the dollar/peso market. He earlier assured the banking system remains stable since Urban Bank's deposit liabilities of about P7.6 billion ($184.1 million) accounts for less than 0.5 percent of the system.
Urban Bank was closed down by the central bank after heavy withdrawals, triggered by talk that it will covert into a smaller-capitalized thrift bank, caused serious liquidity problems.
"The central bank was three selling dollars the entire day so there was no incentive to trade. It's difficult to take a long (dollar) position if the central bank is there anyway so some banks probably just took profits," said another trade.
A local newspaper reported Friday that two commercial banks, International Exchange Bank (iBank) and the Philippine Bank of Communications (PBCom) were hit by heavy withdrawals triggered by the Urbank Bank fiasco. The two banks later denied facing any liquidity problems.
The Bankers' Association of the Philippines (BAP), which groups the country's commercial banks, earlier Friday said it will create a liquidity pool to support banks that may experience unusual cash withdrawals.
The central bank's presence kept players at the sidelines and locked dollar/peso deals within a tight 41.265-41.290 band for the entire session.
Traders said dollar/peso trading on Tuesday will largely depend on the central bank's whims. Financial markets will be closed on Labor Day.
"The market has to know first if the central bank will be at the market to set the trend again. Otherwise, the dollar/peso should be heading above 41.300," said a third dealer at a foreign bank when asked on his outlook for the pair's direction Tuesday. -- Bridge News