Philippines intervenes in currency markets to halt peso surge

Exports are threatened

Arrows, dollar sign Arrows, dollar sign

The Philippines imposed limits on currency forward positions at banks as it steps up efforts to restrain a surge in the peso that threatens exports.

The cap for non-deliverable currency forwards at local banks is 20 percent of capital, and 100 percent for foreign lenders, Bangko Sentral ng Pilipinas Governor Amando Tetangco said in a briefing in Manila yesterday after markets closed. Banks have two months to comply with the new regulation, he said.

The Philippines follows South Korea in clamping down on currency forward positions as Asian officials try to support exporters amid an uneven global recovery. The Southeast Asian nation’s economy expanded 7.1 percent last quarter from a year earlier, luring investors and helping to stoke a gain of more than 6 percent in the peso versus the dollar in the past year.

“The current domestic operating environment has been greatly impacted by capital flows from overseas,” Tetangco said.

The peso has climbed 6.4 percent in the past 12 months, the most after the 8 percent rise in South Korea’s won in a basket of 11 Asian currencies tracked by Bloomberg. The rupee is down 3.3 percent.

The peso weakened 0.2 percent to 41.167 per dollar at the close yesterday, declining by the most in almost three weeks before Tetangco’s briefing, according to Tullett Prebon Plc. The benchmark Philippine Stock Exchange Composite Index advanced 0.2 percent to a record high.

Regulation Review

The currency forward limits will be reviewed after six months, Tetangco said. More banks will be able to participate in the forwards if they have certain licenses, he added.

Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars and are favored by many investors because funds don’t have to be deposited and registered locally.

The peso’s rise is a worry and will hurt exporters and overseas remittances, Economic Planning Secretary Arsenio Balisacan said last month.

The central bank in July tightened rules on inflows by banning foreign funds from investing in its so-called special deposit accounts. It also lowered the rates it pays on them.

“We want to ensure continuity of monetary and financial stability while discouraging regulatory arbitrage,” Tetangco said in a Dec. 14 interview. “We will definitely consider more macro prudential measures as needed.”

Bangko Sentral has cut the overnight rate by 100 basis points this year to bolster economic expansion. It held borrowing costs at 3.5 percent this month.

Inflation slowed to 2.8 percent in November from a year earlier. Consumer prices may rise 2.6 percent to 3.5 percent in December, Tetangco said yesterday.

President Benigno Aquino is increasing spending and seeking more than $17 billion of investments in roads and airports to spur expansion, create jobs and reduce poverty. The push has spurred the fastest economic expansion since 2010.

Bloomberg News

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