Peso enters 43 territory

MANILA, Philippines - The peso broke into the 43 territory versus the greenback on early morning trade Tuesday, sinking further in value after closing at a one-year low on Monday.

The local unit averaged 43.128 to a dollar as of 12:45 p.m., down 34.8 centavos from Monday's close of 42.78. The peso opened at 42.97, weaker by 19 centavos.

Monday's close was the weakest since June 11, 2012 when the peso hit 42.92. The peso trading will close at 4 p.m.

Dollars traded amounted to $815.5 million in the morning session.

The Bangko Sentral ng Pilipinas (BSP) was quick to calm the market, which it said is reeling from positive news in the United States and Japan. 

"Just like other currencies in the region, the peso's movement today has been driven largely by news from Japan and over the weekend from the US," BSP Governor Amando Tetangco, Jr. said in a text message to reporters.

A string of positive data has been coming out from the US, where the public and private sector added 175,000 jobs in May, beating market expectations. 

This has worried investors that the US Federal Reserve will scale down its $85-billion per month monthly bond purchases which have been flooding the financial markets with cheap money.

The Bank of Japan, meanwhile, decided to keep its goal of doubling its monetary base to achieve a two-percent inflation target within two years. 

It however did not announce an extension on maturities of bonds it will buy as market has expected. 

"Markets tend to behave this way, trying to test how far daily volatilities can be stretched. In a manner of speaking, therefore, today's price action should not come as too much of a surprise," Tetangco said.

"It's good to give the markets to breathe," he added.

Nevertheless, Tetangco said the BSP would "monitor" the financial markets as participants may " go ahead of themselves and overshoot." 

BSP Deputy Governor Nestor Espenilla, Jr. told reporters the Monetary Board "will assess the over-all situation" once it meets to review policy on Thursday.

"It does not mean that we cut last time, we will cut again or stay put with what we have," Espenilla said on Filipino.

During its past policy meetings, the central bank has kept policy rates unchanged at record-lows of 3.5 percent and 5.5 percent on a manageable inflation outlook and strong growth.

It however slashed the rate it offers on special deposit accounts (SDA)- fixed-term deposits by banks and trust departments with the BSP- by an aggregate of 150 basis points to two percent. 

The goal was to support growth, which hit a surprising 7.8 percent in the first quarter on the back of a three-percent inflation. BSP is targeting inflation between three- to five-percent this year. 

In the long run, Tetangco said these strong fundamentals will "support the peso."

The peso was Asia's second best performer last year, after it appreciated by 6.8 percent versus the US dollar. It has so far lost more than four percent of its value since it last trading last year on Dec. 28.