With the peso expected to appreciate some more in 2013, the Bangko Sentral ng Pilipinas warned against currency speculation and said it would implement measures to prevent the market from misbehaving.
BSP Governor Amando Tetangco Jr. told reporters that the central bank will allow the peso to appreciate further next year so long as the demand is legitimate.
The regulator will carefully monitor the market and help stabilize the financial sector, he added.
“We have tools that we are preparing to deploy to make sure the market’s movements do not [threaten] financial stability,” Tetangco said in a text message to reporters.
Since the start of 2012, the peso has appreciated by over 6 percent against the US dollar, thus becoming one of the strongest performing currencies in Asia. From the 43-to-a-dollar territory, the peso now hovers in the 41:$1 level.
The appreciation was triggered partly by the continued rise in remittances from overseas Filipino workers, and an increase in the flow of foreign investments.
But the BSP believes that the peso’s appreciation is also driven by currency speculators.
The central bank began implementing measures to curb currency speculation early this year. One measure calls for an increase in the capita-cover requirement for banks’ holdings of non-deliverable forwards (NDFs) from 10 to 15 percent.
NDFs are hedging instruments intended to protect exporters and importers from any exchange-rate volatility. But there are individuals, as well as banks, that make use of NDFs to earn by speculating on the peso.
The BSP likewise reissued in July a rule prohibiting banks from investing foreign funds in special deposit accounts (SDAs) with the central bank.
The SDA facility, from which deposits earn more interest compared with regular bank deposit accounts, is said to have been used by foreign investors as a vehicle to park their funds as they anticipate further appreciation of the peso.
Tetangco said that the central bank is prepared to implement more measures to curb speculative activities if deemed necessary.
The increase in demand for peso-denominated portfolio instruments in 2012 led to the positive outlook on the Philippine economy—now described to be one of the fastest-growing economies in Asia this year.
“The balance-of-payments surplus continues to reflect the positive view of investors on the country’s strong growth prospects and the flows from remittances ahead of the season. In turn, this has supported the peso,” Tetangco said.