By Elijah Joseph C. Tubayan, Reporter
THE Bangko Sentral ng Pilipinas (BSP) on Friday warned currency speculators, saying it will “take all actions necessary to deal with speculative activity by market participants,” as the peso hit its lowest level against the US dollar in more than 12 years.
At the same time, BSP Governor Nestor A. Espenilla said they will “take strong immediate action using the full range of instruments in its toolkit” to curb inflation, which zoomed to a nine-year high of 6.4% in August.
“The follow-through actions will also address other threats to higher inflation such as excessive exchange rate volatility not consistent with underlying macroeconomic fundamentals in order to ensure that inflation returns to its 2-4% target over the policy horizon,” Mr. Espenilla told reporters in a mobile phone message on Friday.
Asked whether the Monetary Board may meet ahead of the Sept. 27 meeting to address these issues, he said: “That’s an option, we’ll see.”
Mr. Espenilla said the BSP is also re-activating tools such as the Currency Risk Protection Program (CRRP) facility, “which will be made available to eligible corporates with foreign exchange obligations based on more liberalized rules.”
The CRRP facility is a non-deliverable peso-dollar forward contract between eligible central bank and local universal and commercial banks, in response to the request of bank clients seeking to hedge their eligible foreign currency obligations.
Under the facility, parties agree that, on maturity of the forward contract, only the net difference between the contracted forward rate and the spot rate shall be settled in peso.
“Normally when you have some volatility on the foreign exchange, your corporates will be nervous. They’ll start buying spot for future requirements. That adds more pressure in the forex market. When you have this CRPP, your corporate players — they will have assurance they will be protected regardless of fluctuations in the foreign exchange market,” BSP Governor Diwa C. Guinigundo said on the sidelines of a media briefing on Friday.
He said the CRRP may be in place by next week.
The CRPP was first introduced in 1997 as a measure to calm foreign exchange volatility during the Asian Financial Crisis.
The BSP said the facility was last availed in 2009, and was last updated in 2005.
Mr. Guinigundo said the BSP will liberalize the eligibility requirements so that banks will be incentivized to tap the facility.
“Some market players do not know that. We will be introducing some changes… Then we expect market players to make some queries,” he said.
Sought for comment, Land Bank of the Philippines market economist Guian Angelo S. Dumalagan said the CRRP may help banks, but won’t necessarily ease volatility in the foreign exchange market.
“It helps qualified institutions protect themselves from FX risk, but it may not directly reduce the volatility of the exchange rate. FX volatility is influenced by multiple external factors like geopolitics and foreign rate hikes that are beyond the control of the BSP and it’s policy tools,” he said in an email.
The local currency closed at P53.8 per dollar on Thursday, which was the lowest level since P53.985 in December 2005.
Mr. Guinigundo noted the peso’s depreciation is due to developments outside the country.
“The pressure comes actually from the external sector because of uncertainties surrounding Turkey and Argentina and continuing trade war between US and China. These are the important backdrop in recent volatility in the forex market,” he said.