Peso dives after freer flotation, RP stocks jump<\/p>\n
MANILA (Reuter): The Philippines caved in to unbearable
\npressure yesterday and effectively devalued the peso, in the
\nprocess pushing the stock market to its biggest single-day rise
\nin four years.<\/p>\n
A central bank announcement that it would allow the peso to
\nmove in a wider range against the dollar came after massive
\nspeculative selling against the currency in the past two weeks.<\/p>\n
This had rapidly drained the country's foreign exchange
\nreserves and forced up interest rates to levels analysts said
\nwould hurt the economy.<\/p>\n
The move follows Thailand's de facto devaluation of baht last
\nweek and repeated denials by Philippine authorities that they
\nwere considering a devaluation of the peso.<\/p>\n
The peso plunged 11.5 percent to 29.45 per dollar before
\ntrades were finally suspended by the Bankers' Association of the
\nPhilippines. This is the lowest level since September 1993.<\/p>\n
In Jakarta, Bank Indonesia reacted to the Philippine move by
\nfurther widening its rupiah intervention band from 8 percent set
\nlast September to 12 percent or from the range of Rp 2,430-2,622
\n(Rp 192) to a range of Rp 2,374-2,678 (Rp 304) to the U.S.
\ndollar.<\/p>\n
However, the response of the Philippines share market was to
\nsoar nearly 7 percent, after a four-day slide.<\/p>\n
\"The whole pattern has been reversed and the public is back
\ninto equities. Unexpectedly, the market went boom. This just goes
\nto show you that the market is not dead,\" said Irving Ackerman,
\npresident at I. Ackerman & Co. Inc.<\/p>\n
President Fidel Ramos issued a statement supporting the
\ncentral bank action. \"This exchange rate action reaffirms the
\ngovernment's commitment to do whatever is necessary to sustain
\nour economic growth, control inflation and generate employment
\nthrough, among others, the protection of our international
\nreserves,\" he said.<\/p>\n
\"This decisive action of the Monetary Board protects the well-
\nearned economic gains of the Filipino people from the effects of
\nthe current difficult circumstances prevailing in regional
\nmarkets.\"<\/p>\n
In an explanatory statement the central bank said the move \"is
\nexpected to remove the incentive for speculation against the peso
\nand allow a gradual reduction in interest rates more compatible
\nwith the economy's requirements for sustainable economic growth\".<\/p>\n
It also conceded that it also could no longer afford to keep
\ndumping dollars in the market.<\/p>\n
Based on its latest reported figures, reserves have fallen by
\nUS$2.5 billion to just $10 billion since March when the financial
\ncrisis in Thailand first began to spill over into the Philippine
\neconomy.<\/p>\n
Reaction elsewhere was mixed, with businessmen welcoming the
\nend to punitive interest rates while bankers said the central
\nbank had lost all credibility.<\/p>\n
\"They (the authorities) were very consistent in that they
\nagreed to allow the peso to weaken on a gradual but orderly
\nbasis,\" said Jaime Panganiban, Bank of America head of treasury
\nin Manila. \"Today they destroyed that credibility. This will
\nreally be a big setback for this market in the eyes of the
\nworld.\"<\/p>\n
One drawback could be for Philippine companies which have up
\nto $5 billion in outstanding foreign currency loans. They will
\nnow have to find more pesos to pay off those loans.<\/p>\n
But the president of the Philippines Federation of Industries,
\nRaul Concepcion, welcomed the move, saying that high interest
\nrates to defend the peso were hurting business.<\/p>\n
Overnight interest rates have more than doubled to 32 percent
\nin the past two weeks and prime lending rates hit 21 percent.<\/p>\n
\"We're pleased that the central bank has decided to allow free
\nmarket forces to come in...they couldn't continue to defend (the
\npeso) with high interest rates because loans to commercial banks
\nhad jumped from 13 percent to 21 percent.<\/p>\n
\"If this were to continue the penalty to industry of higher
\ninterest rates would certainly be far greater than keeping the
\nexchange rate at 26.40,\" he said.<\/p>\n
Related stories on Pages 10, 11<\/p>", "url": "https:\/\/jawawa.id\/newsitem\/peso-dives-after-freer-flotation-rp-stocks-jump-1447893297", "image": "" }, "sponsor": "Okusi Associates", "sponsor_url": "https:\/\/okusiassociates.com" }