Peso declines below 44:$1

Local currency revisits 44:$1 for the first time in eight months on Europe’s worsening debt crisis; stocks extend slump

The peso weakened further to an eight-month low Tuesday, falling past the 44 per dollar level for the first time in eight months, on concern Europe’s worsening debt crisis will encourage overseas investors to pull out more funds.

The peso sank to 44.08 against the US dollar, hitting a low of 44.23 in early trading.

The stock market fell 35.91 points, or 0.9 percent, to extend its losses for the second straight day.

The Bangko Sentral, however, said the local currency remains broadly competitive.

“The peso’s movements are indicative of risk aversion in the face of greater global financial volatility. The peso remains broadly competitive as it’s movements and volatility have been within the range of regional currencies,” said Bangko Sentral Governor Amando Tetangco Jr.

Regional currencies, including the peso, fell against the US dollar as investors rushed to the greenback as a safe haven amid risk aversion, caused by growing uncertainty in the ability of Greece to resolve its debt problem.

The country is seeing a “partial reversal” of capital inflows, central bank Deputy Governor Diwa Guinigundo said in a mobile-phone text message.

Tetangco assured the Bangko Sentral “will continue to monitor global risk appetite and see if our policy settings need to be adjusted so that capital flows in/out of the country remain orderly and their adverse impacts on the economy are mitigated.”

“Overall, the theme is risk aversion,” said Radhika Rao, an economist at Forecast Pte in Singapore. “There’s upward pressure on inflation because of the weaker peso and the series of storms.”

The government will report September inflation numbers tomorrow, a week after two typhoons hit the nation.

The depreciation of the peso over the past four weeks has wiped out the gains it posted in the first eight months of the year, falling from as high as 42.14 against the dollar on Aug. 26 to 44.2 per dollar on Tuesday.

“The peso’s current movement simply reflects the volatile financial markets and uncertain global economic prospects. Risk aversion has climbed, sending foreign investors to flock to what they believe to be safe haven assets,” said Guinigundo.

“In real effective terms, the peso remains competitive,” he said.

The Bangko Sentral official said the peso-dollar exchange rate remained within the Bangko Sentral’s assumption for its 3- to 5-percent inflation target. –Roderick T. dela Cruz, Manila Standard Today