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One of the buildings in the Bangko Sentral ng Pilipinas complex on Roxas Boulevard in Pasay City. (Photo: Alvin I. Dacanay)

BSP eyes relaxing forex rules anew

By Riza Lozada 

The Bangko Sentral ng Pilipinas (BSP) vows to further relax foreign exchange trading rules to help address rising financing requirements of the local economy. BSP Governor Nestor Espenilla Jr. said bank lending continues to be robust but noted financial institutions cannot sufficiently fund increasing needs, thus, the need to also support the local currency debt market. 

“We believe this is a crucial component to sustain the economy’s growth momentum,” he said.

Espenilla said monetary officials also bid to develop the domestic debt market due in part to the developments in the foreign exchange market. To date, the peso is trading its near 11-year low to a greenback at around 50 per $1 level.

Espenilla said daily peso-dollar trading volume averages to around $600 million to date but cited that when the BSP started to collect data, the volume reaches to more than $1 billion.

“For transactions to be happening in the unregulated parallel markets, this has got to change,” he said as he pointed to the needed reforms in the financial sector. Espenilla said reforms needed include making foreign exchange transactions “more risk-based, but transparent.”

He said that “notwithstanding the waves of liberalization that the BSP has announced in the past, we recognize that the foreign exchange market today remains restrictive, difficult, opaque, shallow.”

“It is a throwback to time when fx (foreign exchange) was scarce and reserves were meager and market confidence was very low,” he said.

“Today, it’s an entirely different picture. To preserve those kinds of rules in a market that is rapidly growing is to impede the growth of market itself. It simply adds to cost of doing business and just creates a bigger and bigger black market,” he said.

Espenilla said foreign exchange liberalization will be “a very important focus of my term.”

“We will also continue to reshape the financial system so that it is truly responsive to the needs of the domestic economy. Here we have to recognize technology,” he added.

The last foreign exchange liberalization of the BSP was implemented in August 2016, which allowed Filipinos to buy as much as $500,000 from banks without supporting documents from $120,000 previously. Limit for foreign exchange purchase of corporates was hiked to $1 million. It is the 11th forex liberalization of the BSP.

Weaker peso seen

An analyst, meanwhile, forecasts the the Philippine peso to weaken beyond the government’s 48 to 50 per $1 target range for 2017 but considers this as still okay as long as depreciation is not beyond 10 percent.

Emilio Neri Jr., vice president and lead economist of Ayala-led Bank of the Philippine Island (BPI) projects the peso to end the year at 52.50, way beyond the range set by the country’s economic managers.

By the end of 2018, the economist projects the peso to be at the 54 per $1 level to a greenback.

Neri has repeatedly said that a 52 to a dollar level for the local currency this year and beyond is not bad at all because this will make the local unit more competitive against the other currencies.

“We think (that) as long as annual depreciation is less than 10 percent it’s ok as it will unlikely lead to unmanageable inflation,” he told PNA in an e-mail message.

In the first half of 2017, rate of price increases averaged at 3.1 percent, slightly above the mid-point of the BSP two to four percent target range for 2017-20. Last June alone, inflation decelerated further to 2.8 percent from month-ago’s 3.1 percent and after peaking so far this year at 3.4 percent last March and April.

The BSP continues to see manageable inflation ahead, with the 2017 figure seen to average at 3.1 percent and lower to three percent in the next two years.

Traders have said that central bank’s presence in the foreign exchange market is seen as if the peso is depreciating.

Monetary officials said it does not meddle with the foreign exchange rate in the country given its market-determined exchange rate policy although the BSP joins in the trading but only to address extreme volatility.

This foreign exchange operation is among the reasons for the decline in the country’s gross international reserve (GIR).

“Failure to depreciate when current account position swings from surplus to deficit can mean BSP is selling its GIR inventory too fast,” Neri said.

The current account (CA) position is now in deficit, after more than a decade of surpluses, because of higher importation to meet rising domestic demand.

BSP data show that in the first quarter of 2017, the CA component of the balance of payment (BOP), or the sum of a country’s total transactions with the rest of the world, registered a deficit of USD318 million, which is equivalent of 0.4 percent of the gross domestic product (GDP).

Monetary and economic officials as well as analysts said this turn-around is not bad because the higher importation is due to domestic expansion and is met by strong fundamentals and strong foreign exchange reserves.

BSP data show that as of end-June 2017, the country’s foreign exchange reserves amounted to USD81.41 billion, enough to cover 8.7 months’ worth of imports of goods and payments of services and primary income.

It is also equivalent to 5.6 times the country’s short-term foreign debt.

Economic and monetary officials said a country is considered to have a healthy GIR level if it is enough for its three months requirements.

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