Retire dollar loans now, BSP urges gov’t
MANILA, Philippines—The Bangko Sentral ng Pilipinas has again encouraged the government and private firms to prepay some of their dollar-denominated debts, saying this is a prudent move at this time when the peso is at a four-year high.
The BSP said firms can save a significant amount if they pay off their foreign debt in advance given the strong performance of the peso. It also said firms will not find difficulty buying dollars to settle their debts because of sufficient dollar liquidity within the local financial system.
The Philippines has $82.09 billion in foreign exchange reserves as of the end of October, the BSP said.
BSP Deputy Governor Diwa Guinigundo said encouraging entities to prepay dollar-denominated debts is one of the measures undertaken by the BSP to address challenges related to the exchange rate.
He said steep and extended rise of the peso has adverse consequences on the economy, and so government and private entities may help temper such movement of the local currency by buying dollars for their prepayment requirements. An increase in demand for the greenback helps increase its value against the peso.
“Sharp, prolonged peso appreciation could be destabilizing. This is the reason why the BSP has been very vigilant in preventing volatility in the foreign exchange market,” Guinigundo said.
“Both government and private sector are encouraged to prepay their external obligations,” the BSP official added.
On Wednesday, the peso closed at 41.06 against the US dollar to hit its highest level in more than four years. With this, the peso has risen by more than 6 percent since the start of the year.
The rise of the peso is attributed partly to the country’s favorable economic performance that has enticed investors to purchase peso-denominated assets.
Although foreign portfolio investments are welcome, the resulting sharp appreciation of the currency is frowned upon, especially by exporters and recipients of remittances.
