The Bangko Sentral ng Pilipinas has directed banks to report on a monthly basis the sale of foreign currencies by residents, aiming to better monitor trading activities that may cause the peso to appreciate too fast.
Under Circular Letter 54-2012, the central bank said the sale of foreign exchange, particularly for purposes of making an investment in peso-denominated assets, must be reported to its international operations department.
BSP Deputy Governor Nestor Espenilla Jr. said in the circular that the sale of foreign exchange for the purpose of making an investment must be done regardless of the amount involved.
The peso, which recently broke into the 41-to-a-dollar territory to reach a four-year high, is on an uptrend this year given the anemic growth outlook for advanced economies and the favorable growth projection for the Philippines.
The gap between the growth outlooks has led to increased appetite for investments in peso-denominated portfolio assets.
Regulators believed that even the central bank’s special deposit account (SDA) facility, which is primarily meant to siphon off excess cash from banks to avoid runaway inflation, has become an attractive investment venue for currency speculators.
The SDA is a facility where banks may park their excess funds at higher interest rates. Currently, more than P1.6 trillion in deposits are in the central bank’s SDA facility.
The BSP said it has a foreign-exchange policy of allowing the value of the peso to be market-determined. However, it said it has the flexibility to intervene in the foreign exchange market in times of too much upward or downward pressure on the peso to avoid significant volatility.
Intervention comes in the form of buying or selling currencies to counter volatility pressures. It buys dollars and sells pesos from the market when there is too much upward pressure on the peso. The higher demand for the dollar tempers an appreciation of the peso.
Monetary officials said there was no bias in favor of a strong or weak peso, but that any sharp and sudden volatility must be avoided because this was harmful for business.
In the case of foreign-exchange movements this year, the pressure on the peso was mostly for appreciation. The strengthening of the peso, if other influential factors remain the same, drags the competitiveness of the export sector because it makes Philippine-made goods more expensive in dollar terms and, therefore, less competitive.
Earlier this month, the BSP issued a regulation prohibiting funds owned by foreigners from being invested in the SDA. The move was meant to curb demand for pesos and thus temper the appreciation of the local currency. Michelle V. Remo