BSP eyes measures to curb peso climb

Credit upgrade to further fuel inflow of dollars


07:48 PM December 23rd, 2012


The Bangko Sentral ng Pilipinas said 2013 could be a challenging year as far as preventing an even steeper appreciation of the peso was concerned, noting that a potential investment grade credit-rating for the country could drive more foreign portfolio investments.

Admitting it was actively buying dollars from the market in 2012 to temper what could have been a sharper appreciation of the local currency, the BSP said it expected the need for more action to keep the peso as less volatile as possible next year.

“Capital flows from a [potential] credit-rating upgrade will provide more challenge in terms of keeping the peso relatively stable and minimizing its volatility,” BSP Deputy Governor Diwa Guinigundo told reporters Friday.

In 2012, the peso appreciated against the dollar by more than 6 percent partly on account of significant inflows of foreign “hot money.” After hovering in the 43-to-a-dollar territory at the start of the year, the peso broke into the 40:$1 level before weakening to the 41:$1 band.

Market analysts said the Philippines, together with a few other emerging Asian countries, has become a preferred destination choice for portfolio investments given its favorable economic growth amid the general weakness of the global economy.

The BSP said foreign portfolio investments could grow further in 2013, thereby providing additional appreciation pressures on the peso.

All three major international credit-rating firms—Fitch Ratings, Standard & Poor’s and Moody’s Investors Service—now rate the Philippines a notch below investment grade following rating upgrades over the past two years.

The credit watchdogs cited the Philippine government’s declining debt burden, rising foreign exchange reserves and robust economic growth as among the factors for the upgrade.

“Without the BSP’s participation in the foreign exchange market, the peso could have been firmer, although we had to allow fundamentals to determine the peso-dollar rate,” Guinigundo added.

He reiterated the central bank’s exchange-rate policy of allowing the peso to appreciate specially if such movement was driven by “structural flows,” which included foreign direct investments and remittances. The BSP, however, said it would temper the rise of the peso if this was due to foreign portfolio investments, particularly those that involve speculation on the peso.

To temper the rise of the peso in 2012, the BSP engaged in heavier dollar purchases that pushed its expenditures and led to its losses. In the first three quarters of the year, the central bank had a net loss of P68.36 billion.

The BSP likewise slapped a higher capital requirement on banks’ holdings of non-deliverable forwards (NDFs), which were supposedly hedging instruments for importers and exporters but were believed to be used to earn from currency speculation.

The BSP also re-issued an old directive prohibiting banks from using money of foreigners from being invested in the central bank’s special deposit accounts (SDAs).

A joint research by First Metro Investment Corp. and the University of Asia and the Pacific said that after a 100-basis point cut in key interest rates in 2012, further rate cuts by the BSP could not be ruled out in the coming year alongside other measures to manage capital flows.

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  • Sherwin Abad

    actually the BSP is doing a good job of controlling foreign portfolio investments as these are just temporary and gives the illusion of growth.  A strong peso that’s grown from within is much preferrable as it is true growth.

  • foreignerph

    The peso appreciating is just mirroring the global USD depreciation since the peso is too heavily linked with the USD. Against the EUR, the peso is going down slowly. The USD is in a bad position in the long term as both its debt and GNP deficit is well above the debt/deficit of the Eurozone as a whole.

    As China will replace the US as largest global economy in a few years, and as trade will inevitably be shifting to China, it would be wiser to concentrate on the Yuan/PHP as a gauge. In fact, the exchange rate of the PHP with the Yuan has been quite stable the past 6 months.

  • riccisan

    A bad sign in 2013 for OFWS.   :(

    • Andrei Mendoza

      12 millions OFW against 80 million pinoy backhome??? guess who will win.

      • foreignerph

        The OFWs of course since their income per capita is several factors higher than that of a local worker. Wages in the Phils are much too low and they often don’t include benefits like medicare and pension. Unlike equal opportunity places like the US and Europe, a honest worker, even a college graduate, can never rise from its poverty in the Phils. The creation of wealth he provides goes entirely to a corrupt kleptocracy of politicians and old money.

      • riccisan

        No one. I think you’re smart enough to know why. Mamalengke ka sa labas paminsan minsan kaysa bursting out childish remarks.

      • kunsabagay

        those 80 million back home are dependent on the 12 million OFW’s, don’t forget it

    • foreignerph

      True, and even more so since the younger generation of OFWs becomes less inclined to live in shambles and save every cent to send home, as they want a better life in their guest countries too.


    why does singapore & indonesia depreciate their currency almost yearly. ang php ay kabaligtaran..

  • Pulis Na Pogi

    di kaya tumaas lang ang peso dahil sa season ng remittances ngayon?  temporary ito pihado…

  • OFW_Investor

    Pay Sovereign debt that comes due, that will mean an outflow of US Dollars and stabilize the appreciating Peso.  The Money saved can then be used to build critical infrastructure programs of the govt. We are now in unique position to pay down debts and yet have the ability to invest in roads,railways,airports. 

    • foreignerph

      Wrong. An exchange rate has nothing to do with freeing money for domestic government projects. Government income can only be secondary as the profits of importers or exporters trickle down via the taxes with a minimum delay of 2 years. If they trickle down at all, since profits by a better exchange rate are often hidden and find their way into obscure funds that “vanish” as they are skimmed by private players like politicians, their crooners and bonuses for the top managers.

      An example: when the power industry had to pay less PHP for oil by the peso appreciation during the Gloria kleptocratic period, the gains (oil is paid nominally in USD) didn’t trickle down to the customers but to a “fund” that was discovered much later and then nobody knew where the money in that fund had dissipated to. Gloria & co will certainly have had their share of it.

      Also look at petrol prices at the stations: when the USD goes down, oil companies claim they are sitting on huge oil storages that have been bought with a more expensive USD so they wait some time to lower the price at the station. On the contrary, when the USD goes up, the price at the station goes up much faster and those same storages now suddenly seem to have evaporated.

      As a result, one can doubt the secondary income rise for the government as a result of forex rates since exchange rate profits will be hidden and find their way to a happy few, not to the taxes hence not to the government budget.

      A second remark about paying back debts prematurely. Currently, the interest rates set by the FED and the ECB are well below the inflation rate, tending to zero. One should be very dumb to accelerate paying back debts now as this will virtually net to a relative loss.

      • OFW_Investor

        Now you’re talking. In layman terms, We have to view this as a household debt problem. If a loan is paid, it frees up money either to spend or to save or to invest. Try it yourself and you will see the benefits of loan payments. It frees up capital that is otherwise tied up in interest payments akin to credit card. The foreign debts are primarily in the single digits interest rate as these were contracted out years years even decades ago. One is very very dumb enough to think the problem can not be solved by debt payments.If there is a lona the only solution is to pay the debt. Thats simple enough even for dumbest people to understand..

  • Edward Solilap

    We are now the trash bin of foreign currencies, it’s nonsense to buy dollars to keep on lossing billions of pesos everyday, BSP knows exactly that foreign currency inflows is just temporary because of economic crisis in europe and USA.

    • My name Del free

      baka mas malugi naman ang Export industry kapag pinabayaan mo bumulusok ang dollar. saka marami rin nagreremit ng dollars from OFW’s. 

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