BSP considering limits on currency forwards

Posted at 12/05/12 5:42 PM

MANILA - The Philippine central bank is considering limiting currency forward positions that banks are allowed to hold to tackle speculation in the foreign exchange market, its governor said on Wednesday, as emerging Asia's best performing currency extended its gains.

Governor Amando Tetangco said the monetary authority was working with banks on such a move.

"We are looking at a macro-limit," he told reporters on the sidelines of a business forum when asked whether monetary authorities were considering putting a cap on non-deliverable forwards (NDFs). It was not clear when any changes would be put in place.

The move is meant to ensure NDFs, offshore dollar-based derivatives, are used for legitimate hedging needs and not speculation. Onshore players are allowed to hold positions in peso NDFs.

It would be the latest in a series of measures which the central bank has put in place to counter speculative inflows that have led to increased currency volatility.

The peso edged up on Wednesday, extending its gains to more than 7 percent against the U.S. dollar so far this year on strong foreign inflows into local stocks and bonds, fueled by forecasts of sustained and robust domestic economic growth.

A recent Reuters poll showed further gains in the currency were expected.

On Tuesday, Deputy Governor Diwa Guinigundo said capital controls were measures of "last resort."

To discourage speculation in the foreign exchange market, the central bank tightened the rules on its short-term special deposit account (SDA) window in July to keep foreign funds out of the facility, and lowered the SDA rates.

Last year, the central bank also raised capital charge on non-deliverable forwards to curb currency volatility.