Peso plunges to worst finish in nearly 12 years

THE PESO plunged against the dollar on Monday to its worst showing in almost 12 years following the move of Bangko Sentral ng Pilipinas ( BSP) to cut banks’ reserve requirement ratio by a percentage point.

The local currency closed yesterday’s session at P52.34 against the greenback, 34 centavos weaker than its P52per- dollar finish last Thursday.

This is the peso’s weakest finish in nearly 12 years or since it closed at P52.745 on July 19, 2006.

The peso traded weaker the whole day, opening the session sharply lower at P52.30 per dollar. Its intraday low stood at P52.45, while its best showing was at P52.24 against the US currency.

Dollars traded on Monday rose to $ 1.025 billion from the $ 578.5 million logged the previous session.

A trader interviewed on Monday said the market was “caught off guard” by the BSP’s move to cut the reserve requirement, which led to a weaker peso after the long weekend.

On Thursday, the central bank announced the “operational” cut in universal and commercial banks reserve requirement ratio — the regulator’s first adjustment to the standard since May 2014.

“In deciding to reduce the reserve requirement ratios, the Monetary Board reaffirms the BSP’s commitment to gradually lessen its reliance on reserve requirements for managing liquidity in the financial system,” the BSP said in a statement on Thursday.

The cut will take effect on March 2, according to the BSP circular.

Reserve requirements for thrift banks and rural banks, meanwhile, remain at 8% and 5%, respectively.

In a statement, Bankers Association of the Philippines welcomed the requirement cut, saying: “The reserve adjustment means that borrowers will have access to more sources of funds and more efficient cost of borrowing that is expected to propel more economic activity in the country.”

“Reducing requirement basically lets more peso into the system. So if there’s more peso circulating, it will be less valuable. Hence, we saw the peso weaken [ yesterday],” the trader explained.

Meanwhile, the trader added that the central bank intervened late in the day to contain volatility.

As the country’s monetary authority, the BSP sometimes conducts “tactical interventions” to temper any sharp swings that may cause the peso to appreciate or depreciate.

UnionBank of the Philippines chief economist Ruben Carlo O. Asuncion noted that the market is waiting for the release of the [ US Federal Reserve] minutes in search for clues on the pace of future interest rate hikes.

For today, the trader and Mr. Asuncion sees the peso moving between P52.20 and P52.40 against the dollar.

Meanwhile, most Asian currencies consolidated on Monday as low liquidity and an absence of currency market catalysts limited gains, but strong regional equity markets propped them up.

The South Korean won, which resumed trading after a two- day Lunar New Year holiday, rose nearly 1%, leading the regional currencies’ gains on the day.

“In terms of the Asia FX ( foreign exchange) movements, the most of what we are seeing is the reflection of what happened on the US close on Friday,” said Khoon Goh, head of Asia research at ANZ Banking Group ( Singapore).

“However with most markets closed, we can’t read much into the price action today.”

The S& P 500 index rose on Friday to mark its biggest weekly increase in five years.

Currency markets in China and Taiwan were closed for Lunar New Year and India is shut for a banking holiday. •