* Says review may not necessarily lead to phase out of NDFs
MANILA, Philippines (UPDATE) - The Bangko Sentral ng Pilipinas (BSP) said on Monday it will review the structure of non-deliverable forwards (NDFs) to ensure they are used for legitimate hedging needs, as policymakers look for ways to control liquidity that may put further pressure on inflation.
BSP Governor Amando Tetangco said future action on NDFs would be hinged on the review, but he said it does not necessarily mean NDFs would be totally phased out. In a newspaper interview, he said any new system could feature deliverable contracts.
"Based on the data submitted by banks, we would like to assess whether the use of NDFs is consistent with the purpose of providing a means for hedging legitimate needs," Tetangco told Reuters in a mobile text message.
"We will also be looking at their implications on banks' financial position."
Late last year, the central bank expressed concern about rising volumes in NDFs, which it said had led to increased volatility in the peso.
Non-deliverable forwards are dollar-based derivatives that are traded offshore and can be used for hedging and also for taking a position on a currency.
The Philippine Daily Inquirer reported the central bank might eventually phase out NDFs as it pushes banks and other institutions to shift to a more formal market for dollar contracts.
"We want to know if we should push for the development of more transparent hedging instruments for banks and their clients' foreign exchange needs," the newspaper quoted Tetangco as saying.
Tetangco said the current NDF market was "not too transparent", adding a shift to a new system would likely feature deliverable transactions, the newspaper reported.
One-month dollar/peso NDFs are quoted at 43.13, up 0.3%. It has gained nearly a percent from two-month lows hit on July 8.
The peso was quoted at 43.05 per dollar early on Monday, weaker from Friday's close at 42.94 and off two-month highs reached on July 8.
Tetangco said last week while inflation pressures have started to ease, policymakers were watching liquidity to ensure money supply growth was not excessive, especially if there was a renewed outflow from developed markets into emerging economies.
Since June, banks have been required to report daily on NDF transactions, from weekly previously, a change the central bank said was aimed at getting more information to aid policymakers in managing foreign exchange movements.