Peso falls to 2-year low of 49.399 to dollar

Despite dollar-selling intervention by the Bangko Sentral ng Pilipinas (BSP), the peso sank yesterday to its lowest level in nearly two years, closing at its intraday low of 49.399 to $1.

The peso closed at 48.991 to the dollar on Friday but yesterday’s trade subjected it to further beating, opening at 48.995 to the dollar while share prices at the Philippine Stock Exchange (PSE) fell so hard that officials halted trade temporarily for the first time in its trading history. Yesterday’s close was the lowest since Dec. 19, 2006 when the peso last touched the 49.720-to-$1 level.

The PSE imposed its 15-minute “circuit breaker” rule at around 11.23 A.M. yesterday in an attempt to take the wind out of the frantic sell-off that sent share prices falling and the index losing over 220 points or 11.3 percent.

The panic spread over to the currency market where nerves were already frayed by falling regional currencies and traders watched as the peso appeared set to test the 49.50 to the dollar.

But traders said the BSP made an attempt to yank the peso out of the crevice, pumping in an estimated $100 million to ease the tight dollar supply.

Other traders said the BSP was in the market for as much as 35 percent of the day’s trade which added up to $1 billion by the end of the session.

The peso had ended 2007 at 41.52 to the dollar but frightened foreign portfolio investors have been stampeding out of the Philippine market since the beginning of the year, causing heavy dollar outflows that depressed the peso.

In 2008, the peso appreciated by 18 percent against the dollar because of heavy foreign exchange inflows but the currency has lost everything that it gained last year, depreciating by 18.9 percent so far this year.

BSP officials have been saying that the peso was packing some strength because of continued dollar support from overseas Filipinos but even the 18-percent increase in dollar remittances was not enough to shield the currency from the caustic effects of market panic.

Traders said the markets were picking up from where they left off last week, with the Dow Jones industrial average falling 312.30, or 3.59 percent. No one in the region was spared and the declines came even with government measures to boost markets.

The South Korean central bank cut its rates by 75 basis points to prevent its economy from slipping into recession while Australian and Hong Kong central bankers injected funds into their markets to ensure liquidity.

Market sources said yesterday’s plunge at the PSE was caused by the withdrawal of big funds from the market as they cashed in to meet obligations at home.

Central bank officials said the market’s reaction to the crisis was overdone and did not reflect the country’s economic fundamentals but they admitted that at a time when markets were in panic mode, it would take time before investors could see clearly enough to appreciate the differences between a steady and a dangerous economy.