RP issues decrees to curb peso speculation

RP issues decrees to curb peso speculation

MANILA (AFP): Philippine monetary authorities issued a new set
of guidelines to banks yesterday to curb renewed speculation on
the peso, which opened 0.8 percent lower against the dollar.

The Monetary Board ordered commercial banks with outstanding
foreign exchange forward contracts with non-residents to submit
to the Central Bank of the Philippines an inventory of forward
sales and purchases not later than Friday.

"Weekly reports shall thereafter be submitted," central bank
governor Gabriel Singson said in a memorandum.

The circular followed a central bank order suspending for
three months so-called "non-deliverable forward sales" of the
dollar, so as to enable monetary authorities to strengthen
regulations against these transactions.

Singson said that "in order to curb undue speculations in the
foreign exchange market," all forward contracts to sell foreign
exchange to non-residents with no full delivery "shall be
submitted for prior clearance" to the central bank effective
Wednesday.

The banks are also required to report "cancellations, roll-
overs and renewals" of such contracts, he said, adding that the
new policy will be reviewed after three months.

Non-deliverable forward sales allow one party to sell a
certain amount of foreign currency such as the U.S. dollar at a
specified value at a set future date.

The amount, however, need not be delivered and the transaction
is settled by paying the differential between the forward rate
and the rate on maturity. Officials said the scheme was being
used by speculators to bet against the peso.

The third central bank order banned banks from having long
foreign exchange positions "beyond 10 percent of their unimpaired
capital," and imposed a short foreign exchange position of "not
more than 20 percent" of their unimpaired capital.

The central bank gave banks 90 days to bring these holdings
within allowable limits, and provided for a daily settlement with
banks given two days to bring down holdings within prescribed
limits if they go in excess.

The peso opened at 28.37 to the dollar Wednesday, compared to
28.15 at Tuesday's finish.

The day's low as of 11:00 a.m. (0300 GMT) was 28.48 to the
dollar, or a 7. 9 percent plunge from July 11 levels, the date
when the central bank abandoned its policy of propping up the
currency in favor of allowing it to trade within a wider daily
band.

A trader at a commercial bank said banks were expecting the
peso to weaken further after closing 0.5 percent lower to 28.15
against the dollar Tuesday.

"They want to know where the peso will settle since there is
still demand from foreign banks," the trader said.

Meanwhile, the economic daily Business World said Philippine
banks have started to trim prime lending rates which had
skyrocketed with the monetary authorities' defense of the peso
against speculators.