Manila eying tighter rules on forex trade

Manila eying tighter rules on forex trade

MANILA (AFP): The Central Bank of the Philippines said yesterday it was considering new restrictions on banks' foreign exchange trading to shore up the defenses against speculation.

But Central Bank governor Gabriel Singson rejected the reimposition of foreign exchange controls, saying "it doesn't work."

A central bank statement said the proposed new restrictions would require banks to recompute their daily net open position without including forward contracts that have been canceled.

The bank noted that some banks had been recording a growing number of forward contracts that were later canceled, allowing them to accumulate dollars from the market without violating rules against overbought limits.

As part of this effort, the central bank said it would ask commercial banks to submit a listing of all their forward foreign exchange sales contracts since the start of the year while identifying those contracts which were not delivered or were canceled.

Singson told reporters the banks have one week to comply with this new requirement, adding there would be a "monetary penalty" to those that fail to submit the listing.

Singson said the new restrictions were being imposed because "we don't want to provide (Philippines) pesos to banks who are actively buying dollars and are in an overbought position."

"If it is buying dollars, it means it does not need pesos," Singson said.

However he rejected calls for tighter restrictions, saying "having been involved in (foreign exchange) controls for so many years, I can tell... it doesn't work."

He was reacting to calls that exporters be required to sell their dollars.

Raul Concepcion, head of the Federation of Philippine Industries, also called for further foreign exchange controls, including restrictions on who could buy foreign currencies and a temporary ban on Filipinos investing abroad.

The central bank has been seeking ways to shore up the peso, which has depreciated by more than 30 percent since July when it was hit by a wave of speculative attacks that have been sweeping the region.

The Philippine peso closed at 34.12 pesos to the dollar on Thursday, 3.6 percent higher than the previous day but still 29.2 percent lower than its level before it started falling on July 11.

The peso traded at levels of 34.50 to 34.129 pesos to the greenback with turnover at 204.5 million dollars, the Bankers' Association of the Philippines said.

Banking sources said the appreciation was caused by heavy intervention by the central bank as well as signs of new restrictions on foreign exchange trading.

Trading was suspended twice after the peso breached a "volatility band" of 34.822 to 36.244 pesos to the dollar. Under new rules that took effect on Tuesday, to stabilize the market and curb speculation, trading is suspended for 30 to 60 minutes if the peso exceeds a certain band.

The Philippine peso had closed at 35.4 pesos to the dollar on Wednesday, unchanged from the previous day.

On Tuesday, the peso fell to a record low of 35.981 pesos to the dollar.