Central bank says further FX rule changes to be more gradual

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The Philippine peso has been one of this year’s worst-performing emerging market currencies. -- BW FILE PHOTO

FURTHER RELAXATION of foreign exchange rules can be expected to be more gradual for now as monetary authorities focus more on tempering sharp swings in daily peso-dollar trades, according to a senior official of the Bangko Sentral ng Pilipinas (BSP).

“Further rollouts of other FX reforms would be carefully studied and calibrated,” BSP Deputy Governor Chuchi G. Fonacier told reporters on the sidelines of a signing ceremony in Taguig yesterday.

“We still, of course, continue to roll out the FX liberalization, but there will be some parts of it that we will somehow hold off for a while because we need to see the effect of the CRPP,” she added, referring to the just-rolled out Currency Risk Protection Program.

The CRPP facility is a non-deliverable peso-dollar forward contract between the BSP and local universal and commercial banks, which in turn will serve as a hedge fund for bank borrowers seeking to shield themselves from foreign exchange risks.

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 will be settled in pesos. These hedging contracts will be good for 90 days, although clients have the option to reavail.

Ms. Fonacier said availment of the hedging facility is expected to start this month after the central bank came out with implementing rules for these transactions.

At the same time, she said changes to FX rules that are merely “administrative” — including reduced steps and document requirements for approval processes — may be rolled out.

Measures to be postponed include plans to tweak rules for banks in offering derivatives. “We’re trying to streamline the requirements before a bank can offer derivatives… On one hand, we have to study the impact of that so we’re trying to determine really if we will fully or partially liberalize those kinds of transactions (and) what will be the effect of that in the market,” Ms. Fonacier said.

A plan to form an oversight body to regulate currency traders is also still under consultation with industry. Ms. Fonacier said it may be “too ambitious” to roll out this measure in the last three months of the year. The BSP wants to put more teeth in the code of conduct for currency traders, make the rules binding and hold traders accountable.

These changes come as the peso has been trading weaker over the past few weeks.

The local unit has depreciated by about eight percent against the dollar year-to-date, with the current rate weaker than P54 to $1.

The BSP’s 50-basis points rate hike last week is also expected to help strengthen the peso from its 12-year slump. — Melissa Luz T. Lopez