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Money & Banking

Forex speculation wanes as Bangko Sentral policy bites

February 18, 2013 11:25am

Speculative investments in the Philippine foreign exchange market dropped since its peak in 2010 following measures imposed by the Bangko Sentral ng Pilipinas to curb such activities, the central bank governor said late Friday.   
"I believe the market players have heeded the call to prudence in transacting in the NDF, (non-deliverable forwards), " said Bangko Sentral Governor Amando Tetangco Jr. during the induction ceremony for the 2013 officers of the Economic Journalists Association of the Philippines (EJAP).
According to the central bank chief, the “latest level of outstanding NDF transactions is now about a fifth of the level during the height of capital flows in 2010 of around $15 billion.”
NDFs are dollar-based derivatives traded offshore and could be used for hedging and also taking a position in the currency market. These are futures contract between two parties to buy or sell foreign exchange at an agreed rate of exchange.
Despite saying that the Bangko Sentral is not against the strengthening of the peso, Tetangco said monetary officials believe that "continued peso appreciation that could adversely impact dollar earners."
The central bank chief said what they want to avoid is volatility or the sharp rise and fall of the peso due to speculative investments such as in NDFs. 
Last December, banks’ access to currency contracts were limited by monetary authorities in a bid to temper risky “speculative” inflows pouring in and causing the peso to appreciate.
Local banks were then allowed to transact only up to 20 percent of their capital in NDFs, while their foreign counterparts were given a limit of up to 100 percent of their capital effective next month. 
In January 2012, the Bangko Sentral raised the required capital to cover for the banks’ exposure to NDFs.
The guidelines on establishing such measures are still being refined to ensure all statutory requirements are covered before the guidelines are released. 
The peso—which traded at around 42:$1 at the start of 2012—is now moving around the 40:$1 level. The Philippine unit opened 40.62:$1 on Monday. — VS, GMA News
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