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Proposed capital hike to boost central bank

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BSP
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By Melissa Luz T. Lopez
Senior Reporter

ADDITIONAL funding as well as a foreign exchange cover will allow the Bangko Sentral ng Pilipinas (BSP) to do more open market operations while protecting itself from losses, a senior official said as they await the passage of changes to the central bank charter.

BSP Deputy Governor Diwa C. Guinigundo said that while they are still waiting for Congress to come up with a unified and final version of the proposed law, the regulator is eager to hold additional P150-billion funding, together with tax exemptions and reserves for foreign exchange fluctuations.

Both the House of Representatives and Senate approved separate versions of a bill that updates provisions of Republic Act 7653, or the New Central Bank Act which date back to 1993. Efforts to enact these amendments trace back to previous Congresses, but have fallen short of passage until now.

Among the key features of the latest bills include raising the paid-up capital of the BSP to P200 billion from the current P50 billion.

The two chambers still need to sit for a bicameral conference to harmonize the two versions before submitting it for the President’s signing into law.

“You have more funds, then you can do more open market operations. In case there are certain distressed financial institutions…, you have more resources to provide support to maintain financial stability,” Mr. Guinigundo said in a recent interview when asked about the proposals.

“In short, the P150 billion additional capitalization is very critical and it can go a long way in enhancing the operations of the central bank.”

However, the BSP official acknowledged that it will take time before the additional funding is released, given that the shift to a cash-based budgeting system in 2019 will leave “little flexibility” for the national government to channel funds elsewhere. The 2019 budget is already approved by the House.

Mr. Guinigundo also noted that the stark need for funding for the state’s “Build, Build, Build” program is another consideration. He added that solons are yet to resolve whether the capital infusion will be one-off or in tranches, similar to what was done before.

The central bank is also looking forward to tax exemptions for their governmental functions, he added.

Another significant feature is allowing the BSP to keep reserves for foreign currency swings, which would cushion the monetary authority from big losses from peso-dollar trades.

The BSP conducts “tactical intervention” during the daily peso-dollar trading, in line with their mandate of price and financial stability. A weaker peso usually means big gains for the central bank, given that a big chunk of its assets and investments are expressed in dollars.

“When BSP is in loss, we cannot ask the national government for a subsidy — it doesn’t work that way. It’s not symmetrical. We absorb the cost. When we make profit, we give them dividends and at the same time, whatever happens, we pay tax,” Mr. Guinigundo said.

“With that provision, it’s very easy now to level the operations of the BSP. ‘Pag maganda yung kita, set aside reserves. If you lose the following year because of peso appreciation, you can get it there.”

The central bank is poised to see a banner year with a P45.23 billion net income as of end-September, at a time when the peso is down by around five percent year-to-date. The peso has so far averaged P52.636 versus the greenback from January-October, versus the P50.4037 average for the full year of 2017.