MANILA, Philippines—The Bangko Sentral ng Pilipinas incurred a net loss in January, a consequence largely of its rising expenditures on dollar buying and interest payments.
The BSP had been buying dollars in the foreign exchange market to help prevent an even sharper appreciation of the peso. Moreover, it had been spending more on interest payments because banks had been placing more and more deposits to the BSP.
Latest official data showed that in January, the BSP posted a net loss of P6.92 billion, rising by 75 percent from the loss of P3.95 billion in the same month in 2010.
Monetary officials said the BSP might post a net loss for the entire year, especially if upward pressures on the peso continued to be significant throughout the year.
They said the BSP has adopted a policy of allowing a market-determined exchange rate, but it would intervene in the market from time to time to avoid sharp and sudden volatility of the currency, whether appreciation or depreciation. A too volatile currency would disruptive to business, the BSP said.
In the case when pressures pushing the peso stronger were significant, however, the BSP’s financial condition would be dampened, since stemming the peso’s rise would require buying of dollars and entail cost, they said.
In January 2011, the peso averaged 44.17 against the US dollar, stronger than the 46.03 registered in the same month in 2010.
Since the start of this year, the peso has appreciated further, eliciting expectations that the BSP could continue posting net losses.
Meanwhile, the sustained rise in deposits placed by banks in the BSP was also cited for the dampening of the central bank’s income position.
Banks already have a total of about P1.4 trillion in placements with the central bank’s special deposit account (SDA) facility and nearly P300 billion in placements in its overnight borrowing facility.
The growing deposits of banks in the BSP, and thus its rising interest expense, have elicited suggestions for the BSP to shut down its SDA facility.
But according to the BSP, the facility is an important tool it uses to manage the amount of liquidity in the economy and to control inflation. Money placed in the deposit facility of the BSP is money kept from being used for spending.
The BSP has raised interest rates this year with the intention of attracting more deposits from banks and thus temper inflation. Earlier this year, concerns were serious that inflation could breach the target ceiling of 5 percent. Following the interest rate hikes, BSP officials said inflation would remain well within the ceiling.
Monetary officials said the BSP has been implementing activities, such as moving interest rates, with the intention of fulfilling its mandate, instead of staying profitable. They said the performance of the BSP should be measured in terms of its ability to fulfill its mandates, including inflation control.