MANILA - The peso firmed up to 41.97 against the US dollar on Monday, the first trading day for September, a month earlier than the onset of the remittance season leading to Christmas.
At the Philippine Dealing System, the local currency opened at 42.05, then traded between 41.97 and 42.090 before settling at 41.98.
Trading volume rose from $680.72 million last Friday to $861.7 million.
Idelmarc Bautista, Metrobank head of research, said August is traditionally the weakest for the peso as the imports season has yet to come to a close.
That said, the peso gaining strength around this time is not "normal" compared with the past years, he said.
"But I think we wait a few days to see if there is already an emerging trend. There might be some fluctuations. Even the trading volume is not that big enough today and the central bank may have sat this one out, also waiting for the same thing," Bautista said.
There has been much debate about the Bangko Sentral ng Pilipinas giving up its strict mandate of inflation targeting for currency defense. Economists had been calling for rate cuts, purchase of bigger volumes of dollars from the market, and installing bolder capital controls to weaken the peso.
However, the BSP has been reluctant, preferring to guard against inflation amid higher prices of oil and other commodities.
"But the BSP is already sending strong signals that it doesn't mind setting aside inflation targeting and that it signals they are not going to mind higher inflation for weaker peso, that's my sense," Bautista said.
"Based on our data, the BSP may keep rates at 3.75 percent after 25-basis point cut this year before raising it in 2013. Then they would do something administratively, like what they did with the provisions for real estate for example and the special deposit accounts," he added.
Bautista said the problem is that Philippine economic growth, especially in the fourth quarter, is expected to be above-average, thus making the peso a one-way bet for foreign investors.
"Unless the BSP really do capital controls. But despite this, there would still be a lot of liquidity in the system and the signals they gave the market on the SDAs did not work since the SDAs still grew. Personally, there's nothing you can do to keep the dollars from coming in since - even if you bring down the key interest rates at 3 percent - that is still high compared to the near-zero rates offered by other markets," he said.
"The problem now is what to do about the exporters," he added.
source: interaksyon.com
