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Peso may fall to 57.95:$1 this week sans BSP intervention |
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(10 February 2004, Tuesday - The Philippine Star)
By Des Ferriols Without any regulatory intervention, the peso may plummet to 57.95 to a dollar this week, a Monetary Board (MB) official said yesterday. |
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The senior MB official who asked not to be identified told reporters that the MB had decided to step into the fray after realizing that leaving up the exchange rate to market forces would lead to a "rapid and irreversible depreciation" that could trigger bigger problems.
In a surprise move, the MB decided to increase the liquidity reserve requirements of banks one week ahead of the scheduled policy meeting of the board. The MB approved a two-percentage point increase or from eight to 10 percent, immediately siphoning about P30 billion from the system that would otherwise find its way into the foreign exchange market. According to the MB official, alarms were raised by the simulations ran by the BSP last week when the exchange rate broke past the P56 to the dollar level and stayed there for a week. The official said that based on at least three different forecasting models that the BSP uses to simulate the movement of the foreign exchange, the peso has been projected to hit 57.95 this week. The BSP is not technically allowed to target a specific exchange rate but it is allowed by its charter to tweak liquidity in order to shield the peso from "excessive volatility." The source said the MB "had no choice but make aggressive moves" last Thursday. By removing P30 billion out of the system, the source said the market became more circumspect about undue speculation. "Our tools are on the monetary side and are limited when it comes to abstractions such as sentiments and perceptions," the official said. "We have no weapons to combat political concerns that drive the negative investor sentiment." If the peso had been allowed to go on what the official called a "free fall", he said it would have been very difficult for the currency to recover and prices of oil, milk and would have gone up. The official said a P57.95 to a dollar exchange rate is going to be very costly. The government estimates that for every one-peso drop against the US dollar, government spending goes up by P1.5 billion. A two-peso drop means that its expenses will go up by P3 billion. home | latest news |
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