Peso, PSEi down ahead of Fed, BSP policy meetings, ME concerns

By Joann Santiago

MANILA, June 16 (PNA) — Risk aversion ahead of the policy meeting of the Federal Reserve and the Bangko Sentral ng Pilipinas (BSP) this week partly caused the weakening of both the peso and the local bourse Monday.

The peso shed Php0.13 to end the day at 43.92 from 43.79 Friday last week.

It started the day at 43.88, weaker compared to the 43.78 in the previous trading.

It slightly strengthened to 43.85 but also dipped to 43.93 bringing the day’s average to 43.87.

Volume of trade is lower at USD 426.4 million from USD 713 million at the end of last week.

A trader said the local currency tracked the Philippines Stock Exchange index (PSEI), which lost 0.39 percent or 26.5 pionts to 6,758.45 points.

Most of the sub-indices tracked the main index except for the property, which grew by 0.60 percent or 15.77 points to 2,647.06 points and mining and oil, which increased by 0.48 percent or 73.69 points to 15,339.35 points.

Trading was thin at 1.13 billion amounting to Php6.7 billion.

Decliners surpassed gainers at 95 to 91 while 47 stocks were unchanged.

The Federal Open Market Committee (FOMC) will have its fourth two-day policy meeting for the year from April 17-18 and it is widely expected to announce another USD 10 billion cut from the Fed’s stimulus program.

To date, the third quantitative easing (QE3) program amounts to USD 45 billion. It has been slashed off a total of USD 40 billion since last December as US monetary official see improvements in the world’s largest economy, thus, the need to slowly pull out the stimulus program.

Also, the BSP’s policy-making Monetary Board (MB) will have its fourth rate setting meet on Thursday and it is widely expected to announce a tightening in the key rates as inflation continue to go up.

To date, the BSP’s overnight borrowing or reverse repurchase (RRP) rate is at record-low of 3.5 percent and the overnight lending or repurchase (RP) rate is at 5.5 percent.

These were last touched in October 2012 when these were cut off 25 basis points in a bid to help boost the domestic economy on back of low-inflation environment.

That year, the key rates were cut a total of 100 basis points.

In 2013, monetary officials were given a leeway of not touching the policy rates because of low inflation regime but they made several adjustments on the rules governing the special deposit account (SDA) because of the strong rise of domestic liquidity or M3 and because investors tapped SDA as an investment option.

The SDA facility was established in November 1998 as part of the central bank’s policy toolkit.

The BSP allowed the trust entities to park funds in the facility starting in 2007 for the central bank to further manage liquidity in the system following the surge of dollar inflows in the domestic economy.

Last year, foreign funds as well as investment management account (IMA) funds were banned to tap the facility to discourage banks to use it as an investment vehicle.

Also, interest rate of the facility was cut to a unitary two percent in line with the bid to thwart banks for using this as an investment option. Rate of the SDA was previously pegged against the RRP rate.

Inflation in the first five months of the year averaged at 4.1 percent, at the upper half of the government’s four to five percent target.

Meanwhile, the other factors in the weakening of the local currency and the local bourse are the tensions in the Middle East, which in turn raised fears on oil supply condition. (PNA)