BSP liberalizes currency hedging facility
MANILA -Monetary authorities gave the green light for easier access and expanded coverage of the currency rate risk protection program (CRPP) of the Bangko Sentral ng Pilipinas (BSP) as part of efforts to temper pressures in the foreign exchange (FX) spot market.
The Monetary Board decided on this in the aftermath of the Philippine peso’s sharp depreciation in 2022.
The local currency started last year at 51:$1 and was stable throughout much of the first semester until it started to weaken rapidly from 53:$1 in June to reach 59:$1 in October.
The BSP noted that while the Philippine economy was projected to have a strong rebound following the effects of the pandemic, local recovery was hampered by externalities from global developments.
Among the external factors that contributed to the depreciation of the Philippine peso in 2022—similarly as comparable regional peers—were the prospects of aggressive interest rate hikes by the United States Federal Reserve, concerns over the impact of Russia’s invasion of Ukraine, and imposition of tighter COVID-19 restrictions in China.
The peso ended 2022 at 55:755:$1 partly due to the BSP’s intervention in the foreign exchange market. Since then, the peso traded at as strong as 53.68:$1 on Feb. 2 and as weak as 56:21:$1 on April 19.
“The lessons from last year’s weakness in the peso show that spillover of risks is inevitable in an increasingly global and interconnected world,” BSP Governor Felipe Medalla said in a statement.
“Hence, as the peso stabilizes, we find this an opportune time to strengthen Filipino resilience,” Medalla said.
Revamped CRPP
He said the CRPP had to be revamped to increase its availability to banking clients, streamlining and easing the requirements and expanding the coverage of eligible foreign exchange transactions.
In particular, documentary requirements have been aligned with the existing regulations on foreign exchange transactions. Also, notarial rules were removed to enable expeditious applications.
Further, foreign exchange obligations and transactions eligible for the CRPP Facility have been expanded to include nontrade transactions and investments from the original trade-related coverage.
The CRPP facility serves as a tool for the effective management of foreign currency exposures amid exchange rate volatility.
Through the facility, clients of universal and commercial banks are allowed to hedge—countering or minimizing the risk of adverse exchange rate movements—their eligible foreign currency obligations or transactions through nondeliverable forward contracts.
Bank clients who wish to tap the CRPP facility may deal with their respective banks, which shall then transact directly transact with the BSP in their behalf. INQ
