MANILA, Philippines - The Bangko Sentral ng Pilipinas (BSP) is also looking at macroprudential regulations instead of only policy rates and other liquidity enhancing measures to combat inflationary pressures brought about by high food and oil prices as well as surging liquidity.
BSP Governor Amando M. Tetangco Jr. said in an interview with reporters that monetary authorities are also considering macroprudential tool kits to manage the impact on inflation, the currency, and the economy as strong capital inflows to emerging markets are likely to persist due to uncertainties in economic growth in advanced economies particularly the US.
“We are also consideting macroprudential regulations,” Tetangco stressed.
These measures include enhancing the flexibility of the domestic currency, further building up foreign exchange reserves, and issuing bank regulations to deal with foreign inflows.
Latest data released by the BSP showed that the inflow of foreign portfolio investments or “hot money” surged 160% to $2 billion in the first five months of the year from $772.4 million in the same period last year on the back of strong investments in shares listed at the Philippine Stock Exchange (PSE) and peso-denominated government securities.
Inflows more than doubled to $7.79 billion in the first five months of the year from $3.55 billion in the same period last year while outflows consisting mostly of withdrawals from interim peso deposits also more than doubled to $5.78 billion from $2.77 billion.
Recently, he said the BSP issued Memorandum Circular 28 directing banks and trust firms to submit non-deliverable forward (NDF) reports daily to the BSP Supervisory Data Center instead of weekly as part of efforts to monitor the currency deals of banks and trust firms with offshore investors and to curb excessive volatility in the foreign exchange market.
Foreign exchange forward contracts refer to an agreement to buy or sell foreign exchange at a specified price but for delivery and payment in the future. In the case of NDFs, only the price differential is settled upon maturity.
In June of 2008, the BSP directed banks to submit NDF reports on a weekly basis due to wild swings in the peso-dollar exchange on currency spot market. A surge in NDF trades by some banks in offshore markets could put a lot of pressure for the peso to appreciate strongly against the US dollar.