Peso falls in wake of BSP move to cut interest rates

By Michelle V. Remo

Philippine Daily Inquirer

9:48 pm | Monday, October 29th, 2012

AFP FILE PHOTO

MANILA, Philippines—The peso fell on Monday, following the move of the Bangko Sentral ng Pilipinas last week to cut interest rates to new record lows.

The local currency closed at its intraday low of 41.275 against the US dollar, down by 6.5 centavos from Thursday’s finish of 41.21:$1 (markets were closed on Friday).

Intraday high hit 41.16:$1. Volume of trade amounted to $595.10 million from $794.438 million previously.

The depreciation of the peso came with the view that the move of the BSP to cut its key policy rates to new historic lows would influence a reduction in yields from securities.

The BSP cut its overnight borrowing and lending rates by another 25 basis points last Thursday, thus bringing these to just 3.5 and 5.5 percent, respectively. It was the fourth time in 2012 that the BSP cut its key policy rates. The three previous rate cuts done earlier in the year also amounted to 25 basis points each.

The rate reductions were meant to influence a cut in bank lending rates, thus spur demand for loans. The BSP said higher demand for credit should boost consumption and investments.

Higher domestic demand would help cushion the ill-effects of an anemic global economic performance on the growth of the Philippines, the BSP said. With the lackluster demand from crisis-stricken eurozone and sluggish US economy, export earnings of the Philippines and other emerging markets are seen to remain weak.

Traders said cuts in interest rates were often immediately followed by an easing of demand for portfolio assets, such as peso-denominated stocks and bonds, thus causing a depreciation of a currency.

The decline of the peso came with the drop in the Philippine Stock Exchange Index (PSEi) by 7.74 points to 5,397.42.

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Tags: Bangko Sentral ng Pilipinas , business and finance , currencies , economy , Foreign Exchange , interest rate cuts , Philippine peso , US dollar

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