BSP warns vs. currency speculators

As the Philippine peso traded near the 54-per-dollar level on Friday, the Bangko Sentral ng Pilipinas (BSP) warned currency speculators as it starts to reactivate tools aimed at easing demand pressures in the foreign exchange market.

“The BSP will take all actions necessary to deal with speculative activity by market participants,” BSP Governor Nestor Espenilla Jr. said in a text message to reporters.

The peso traded near the P54:$1 level during the morning session and hit an intra-day low of P53.975:$1.

The last time the peso touched 54 per dollar was on Dec. 2, 2005 when it traded at 54.155.

Investopedia defines currency speculation as buying, selling, and holding currencies to make profit from favorable fluctuations in exchange rates.

The central bank is reactivating the Currency Risk Protection Program (CRPP), “which will be made available to eligible corporates with foreign exchange obligations based on more liberalized rules,” Espenilla said.

The peso closed firmer at P53.73:$1 on Friday after the central bank announced it indents to reactivate its currency protection program.

“Normally when you have some volatility on forex, your corporates will be nervous and they’ll start buying spot for future requirements that adds more pressure in the forex market. So, when you have this CRPP, corporate players will have assurance they will be protected regardless of fluctuations,” BSP Deputy Governor Diwa Guinigundo said in a press briefing at the BSP headquarters in Manila.

In a separate statement, the BSP said it the CRPP was first introduced in December 1997.

A non-deliverable forward hedging facility, the program aims to alleviate demand pressures in the foreign exchange spot market from borrowers seeking to hedge their future foreign exchange exposures.

Once the forward contract matures, only the net difference between the forward rate and the spot rate shall be settled in pesos.

The BSP said it will make the CRPP available to eligible borrowers through commercial banks.

To reflect more liberalized rules, the central bank said it is updating the program— particularly the eligibility requirements.

“The BSP will take strong immediate action using the full range of instruments in its toolkit in order to respond to the emerging threats to inflation and inflation expectations,” Espenilla said.

“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 percent target over the policy horizon,” he said. —VDS, GMA News