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.