The ongoing mudslinging in the political arena, arising from the floodgate mess, sent shivers through the financial market. The peso suffered continuous beating against the United States (US) dollar, and the bourse slid down.

Yes, Virginia, the currency, bond, and equities markets are uptight! The unearthing of ghost and substandard projects and the extent of the individuals involved in the floodgate scandal heightened the persistent demand for the mighty green while selling dominated the local bourse.

The lingering heat of the country’s political condition, creating economic uncertainty, continues to weigh down market performance. This is what’s resulting in tightness in the foreign exchange (forex) market and setting off selling in the equities market.

From what I heard in the banking corridor, the peso would have flirted close to the ₱59 mark if not for the intervention of monetary authorities to smoothen the downward movement.

This calls to mind the situation three years ago. On Sept. 27, 2022, the peso flew to an ₱58.90 intraday low, not because of the political condition but largely due to high inflation.

Three years ago, it was Typhoon “Karding” that quashed the beatings on the peso. This time around, though, the circumstance is altogether different: it was the series of typhoons that unearthed the floodgate mess, sending the peso reeling against the mighty green.

The political undertone is setting off the fundamental weakness, causing the market to be “tight and uptight.” From what I’ve gathered, Monday’s spot trading, which saw the peso weaken to an intraday low of ₱58.145, was brought about by increased buying—albeit legitimate demand to settle import bills—plus speculative pressure fueled by continuing insults and accusations among elected officials.

Actions from monetary authorities, based on my interviews, were believed to be “indecisive!” The Bangko Sentral ng Pilipinas’ (BSP) presence was felt, but it was described as not decisive enough. “The authorities acted too late. They should have intervened strongly when the peso appreciated to ₱57.94 to quash the pressure.”

With the showing of the so-called “big fig” (the market’s lingo for breaking the big figure), the play in the spot, from here on, is to push for the peso to flirt with, if not breach, the ₱59 mark.

From what I’ve heard along the banking alleys, most of the banks at the moment have overbought positions, which is pushing the spot to go up further. I still believe the BSP will take control of the situation and dictate the acceptable level and maximum threshold of the peso.

As I see it, the peso has been overdone despite the political noise. Yes, Virginia, I fully agree there’s pressure, but there’s no impending danger and we are nowhere near Indonesia and Nepal.

While most banks are long on dollars, this week saw the market tight in peso liquidity as banks scrambled to cover and/or square their negative reserve position following the BSP’s half-day work declaration because of Typhoon “Opong.”

The timing of the half-day announcement, plus the non-reserve day, was off. From what I’ve gathered, it caused liquidity problems for some banks that were reserve-deficient the day before. Prior to the declaration, some banks even made an enormous amount of overnight placement with the BSP.

With the declaration, Thursday was the start of the reserve week instead of Friday. If a bank was short, its reserve position was carried over to the next working day, which was last Monday, causing tightness in market liquidity at the onset of the week.

To prevent this situation from moving forward, I believe it is best for the BSP to be more defined in its holiday and non-reserve day pronouncements.