BSP sees net loss this year
MANILA, Philippines – The Bangko Sentral ng Pilipinas incurred a net loss in January, a consequence of its increasing purchase of dollars to hold down the value of the peso 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 in 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 last year.
Monetary officials said the BSP may post a net loss for the entire year, especially if upward pressures on the peso continue to be significant throughout the year.
They said the BSP adopts a policy of allowing a market-determined exchange rate, but that it intervenes in the market from time to time to avoid sharp and sudden volatility of the currency, whether appreciation or depreciation. This is because a highly volatile currency is disruptive to business, officials said.
When pressures pushing the peso stronger are significant, however, the BSP’s financial condition is dampened, they said. This is because stemming the peso’s rise requires buying of dollars, an act that entails costs.
In January 2011, the peso averaged at 44.17 against the US dollar, stronger than the 46.03 registered in the same month last year.
Since the start of this year, the peso has appreciated further, giving rise to expectation that the BSP could continue posting net losses.
Meanwhile, the sustained rise in deposits by banks in the BSP was also cited for dampening 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.
The BSP said, however, that the facility was an important tool it used 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 was now expected to remain well within the ceiling.
Monetary officials said the BSP implemented activities, such as moving interest rates, with the intention of fulfilling its mandate and not actually the intention of being profitable. They said the performance of the BSP should be measured in terms of its ability to fulfill its mandates, one of which is to control inflation.
