A HEDGING FACILITY put in place by the central bank to help support the peso has helped the currency recover in recent days, with an analyst noting that the unit may strengthen closer to P53 versus the dollar next month.
Bangko Sentral ng Pilipinas (BSP) Deputy Governor Chuchi G. Fonacier said last week that the Currency Risk Protection Program (CRPP) has helped lift the peso from fresh 12-year lows seen earlier this month.
The peso has seen a marked recovery since last week, just as implementing rules released by the central bank took effect. Ms. Fonacier told reporters on Friday that the central bank has seen numerous availments under the CRPP, which “partly” helped boost the peso against the dollar. “Definitely, I know there are a lot of takers. Who wouldn’t like to hedge and lock in that amount?,” Ms. Fonacier said.
The CRRP 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 clients wanting to protect themselves from greater currency volatility. 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 pesos. These hedging contracts last for 90 days, although clients have the option to reavail. Firms with foreign currency debt of at least $50,000 can hedge their exposures through agent banks. This mechanism, in turn, is expected to help temper dollar demand at the spot market.
CLOSER TO P53
Michael L. Ricafort, economist at Rizal Commercial Banking Corp. (RCBC), said availments under the CRPP can sustain the peso’s appreciation closer to the P53 mark “over the next two weeks.”
After touching a low of P54.325 versus the greenback in late September, the peso recovered in recent weeks and even touched P53.70 to $1 on Friday, its best performance in over a month. The local unit closed at P53.815 on Tuesday, still 7.8% weaker year to date.
The bank economist added that this could be an opportune time for the BSP to beef up its gross international reserves (GIR) anew, following declines in recent months.
“The central bank has already signalled about a month ago or so that they will also be ready to replenish the GIR during this time of the year if the peso appreciates. We have seen some decline in the GIR recently, part of which probably to defend the currency to smoothen the depreciation,” Mr. Ricafort said.
The country’s foreign currency reserves dipped to a seven-year-low $75.161 billion in September on the back of lower gold valuations and as the central bank tapped the stash for its foreign exchange operations. The current GIR level settled below the $80-billion forecast for the entire year, and is also lower than the $81.57-billion reserves held at end-2017.
“The latest figures still reflect some declines in the GIR… But P53 is already better than consensus,” Mr. Ricafort added.
The GIR is a key measure of economic resilience since it serves as a buffer against external shocks. The reserves are enough to cover 6.8 months’ worth of imports or nearly six times the country’s foreign debt falling due within 12 months, according to the central bank. — Melissa Luz T. Lopez

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