BSP to issue new rules on capital controls

By Prinz P. Magtulis, Philippine Star

Posted at Dec 26 2012 08:02 AM | Updated as of Dec 26 2012 04:02 PM

MANILA, Philippines - Monetary authorities are set to issue today new regulations aimed at tempering capital inflows, central bank officials said.

“The objective is to ensure macroeconomic stability since capital flows can have adverse impact…including severe misalignment of currency against the US dollar,” BSP Deputy Governor Diwa Guinigundo told reporters.

The Monetary Board, the BSP’s policy-making body, is set to meet today ahead of its regular Thursday meeting.

In a notice released last Friday, the BSP said they will tackle in a press briefing the guidelines of Basel III banking reform framework to be implemented in the country by January 2014. However, market players expect the announcement will include measures against capital flows.

“Let’s wait for the (BSP) governor to announce it,” BSP Deputy Governor Nestor Espenilla Jr. said.

BSP Governor Amando Tetangco Jr. has said “at least one measure” will be released before the year ends as capital inflows continued to swamp the local economy resulting into persistent peso appreciation. A strong peso trims the value of dollar export earnings and remittances.

The local unit, which closed at 41.070 to a dollar last Friday, has gained more than six percent against the greenback this year. It is so far Asia’s second best-performing currency, next to the Singapore dollar, per BSP data.

“We have sufficient tools in our policy tool kit to address the issue of capital flows,” Guinigundo reiterated, echoing his no-capital control pronouncements last week.

Another measure seen is an impending cap on non-deliverable forwards (NDF) for the banks. The cap, Tetangco has said, will be in the total value the whole industry can hold. NDFs are short-term currency contracts prone to speculative inflows betting on more peso appreciation.

But Antonio Moncupa Jr., secretary of the Bankers Association of the Philippines (BAP), declined to provide a clue if such regulation is already upcoming. The BSP and BAP are in talks to develop the NDF cap.

The BSP has been concerned about the influx of foreign inflows into the country driving the peso’s strength and possibly promoting asset bubble formation. It has unveiled various measures this year including a ban on foreign funds in special deposit accounts and tighter computation of bank real estate exposure.

Despite this, Guinigundo said the BSP will continue to support an open financial market.

“We continue to adhere to market principles to address the issue of capital flow management,” he said.