In a related development, the Bureau of Treasury rejected all bids for 91-day treasury bills which are considered the benchmark for short term bank loans in the country.
With a major holiday coming in two days, the trading members of the Philippine Dealing System (PDS) tested once again the patience of the central bank, the Bangko Sentral ng Pilipinas (BSP).
The peso opened at Ps51.150, weaker than the previous day’s close of Ps51.080, at the PDS, the country’s interbank currency trading system.
By 10am, with a total traded volume of $1.5 million, the peso sank to Ps51.200. By noon, the peso plunged to Ps51.350 with a volume of $28.25 million.
Incremental frontier management
At these volumes, the traders exemplified what a local columnist calls as “incremental frontier management” - meaning, with low trading sizes they gradually push the frontier of the peso’s weakness until the BSP steps in with intervention dollars that the traders then gobble up at larger trading sizes.
By 4pm, at which time the PDS closes, the peso reached a hitherto unknown depth of Ps51.650. The closing trade: Ps51.480. The average price: Ps51.427 for the day’s total volume of $77.75 million.
These volumes are too small to warrant the BSP’s serious attention but it is the benchmarking effect of the peso level that causes cascading problems throughout the financial community as almost every transaction is based on this benchmark.
What is market price?
This exactly is the inherent defect of a market-based currency pricing. What is market price? Is it the price at which small volumes are being sold? A peso benchmark set by a trading volume of $77.75 million is questionable.
Precisely for this imperfection of a floating currency that highlights the advantage of a fixed rate system such as that in Hong Kong.
Interest rates
Meanwhile, the Bureau of Treasury rejected all bids for the bellwether 91-day treasury bills but accepted a staggering five percentage points increase of the 364-day bills. The average yield of the latter is 18.926%.
