At the Philippine Stock Exchange (PSE), share prices tumbled by nearly 12 points, the lowest since Nov. 20, 2001 when the index closed at 1,025.47.
The peso suffered the full brunt of the beating during yesterday’s trade at the Philippine Dealing System (PDS), but the Bangko Sentral ng Pilipinas (BSP) surprised the market by staying away and allowing the currency to close at its intra-day low.
The peso opened at 53, which was also its highest level yesterday before hitting a low of 53.290:$1. Yesterday’s close was 31-centavo lower than Thursday’s close of 52.980 to the dollar.
Unidentified attackers detonated a grenade at the intersection of Ayala Ave. and E. De Los Santos Ave. in Makati City while another explosive was disarmed by authorities at the crack of dawn yesterday.
"The market is being affected by weaker regionals and a knee-jerk reaction to domestic developments yesterday," BSP Deputy Governor Amando Tetangco said, adding that " we are monitoring market movements. We have a flexible exchange rate policy but we will take measures if necessary to maintain orderly market conditions."
Traders at the PDS said yesterday’s depreciation was due solely to the bombing attacks in Makati, creating widespread speculation that more attacks would happen, not just in Mindanao but in other urban areas like Metro Manila.
"The market is scared. Why would you be selling dollars if things are exploding left and right," the traders said.
"The reason why these blasts have substantial impact is because they happened one after the other. The Bali incident was bad and Zamboanga is helping any. The market’s already nervous and this is not going to help the peso or improve sentiment."
"If this happened in Mindanao, the market probably would have reacted differently," one trader said. "But this is in Makati, it was too close for comfort.,"he added.
They also said banks wanted to be long on dollars in anticipation of any crisis that might ensue as a result of the attacks.
With the peso closing at its lowest point yesterday, traders said there could be residual effects when currency trading resumes next week.
"If nothing happens over the weekend, maybe there would be a correction and the peso will strengthen. Especially since we are expecting huge dollar inflows from overseas Filipino workers, " one currency trader said.
The BSP has been expecting the bulk of dollar inflows from OFWs to come in the next two weeks in time for tuition payments for the second semester of the school year. Inflows would go up further as the holiday season approaches.
BSP Governor Rafael Buenaventura told reporters that the peso would eventually calm down, despite the initial reaction.
"Traders and investors tend to over-react. Their first move is to cover themselves in case something else happens so this is no surprise," he said.
According to Buenaventura, however, the central bank was closely watching the situation and was prepared to take steps should speculation get out of hand.
"If the movements are too sharp, then that could be a signal for the BSP to provide dollar liquidity to smoothen the peso movement," the BSP said earlier.
The BSP said the demand for dollars was the same and with regional weakness weighting on the peso, the depreciation was not a surprise. Anticipating upward pressure on oil prices, oil companies have been stockpiling supply for the last few weeks, creating a demand for foreign currency that they require in order to make their oil importation.
Ordinarily, the volume of dollar inflows from OFWs would easily dampen the effect of this demand but external factors complicated the market forces pressing against the peso.
OFW remittances, on the other hand, were expected to hit a record high this year of $8 billion, up from only a little over $6 billion last year as the country deployed more workers abroad.
As a result, the country’s gross international reserves have been unusually strong, enough to allow the BSP to continue defending the peso against speculative attacks.