With the peso’s significant appreciation since the start of the year, the Bangko Sentral ng Pilipinas is now considering special measures to further curb speculation on the local currency.
According to BSP Governor Amando Tetangco Jr., the monetary authority plans to put a cap on banks’ holdings of non-deliverable forwards (NDFs), citing the need to secure the economy against the destabilizing effects of excessive foreign portfolio investments, particularly the speculative types.
“We are considering putting a macro limit [on volume of NDFs],” Tetangco told reporters Wednesday at the sidelines of a financial education forum held in Makati City and organized by Citi and Financial Times.
He did not cite a specific figure.
At present, there is no limit on the volume of NDF transactions that banks can engage in. But they are required to allocate a certain capital to cover their NDF holdings.
An NDF is a hedging tool that allows holders to buy currencies at a specified exchange rate and time in the future. This helps shield importers and exporters from losses brought on by foreign exchange volatility.
But the BSP believes some banks are trading NDFs to earn from speculation on the peso. Currency speculation may result in excessive volatility of the exchange rate and prove harmful to the economy, the central bank said. Putting a cap on NDF holdings is a straightforward move to curb speculation on the peso.