BSP expands currency risk protection scheme

The Bangko Sentral ng Pilipinas (BSP) expanded yesterday the coverage of the currency risk protection program (CRPP) and extended its effectivity to five years in an effort to relieve pressure on the peso.

The CRPP is a non-deliverable forward (NDF) dollar hedging facility of the BSP to protect both the banks and net importers like oil companies and manufacturers. It was introduced in 1997 in the face of the Asian financial crisis.

Under the new rules effective immediately, the CRPP will now cover net importers aside from the original sectors, including the oil and manufacturing industry.

Monetary authorities are pushing for a larger segment of industry to avail of the foreign currency hedging facility as it would ease pressure on the peso. This is because the CRPP would not affect the Philippine Dealing System (PDS) or the spot market.

"Banks may also be allowed to enter into long-term cross currency basis swaps with foreign investors with the actual period reliant on the negotiations between parties (banks and investors)," they added.

The rationale behind this move is to attract foreign investors waiting in the wings for the Philippine economy particularly the peso to stabilize.

"We took steps calculated to calm down the markets and provide user-friendly measures for the domestic as well as the foreign investment market," BSP Governor Rafael Buenaventura said in a briefing.

He revealed that portfolio inflows year-to-date reached $400-million although in the past two weeks inflows had been negative.

He added the new regulations would not drain international reserves "since the settlement of the forward contracts will be in pesos and will cover the next difference between the contracted forward rate and the prevailing spot rate at maturity."

Monetary authorities will also review the pretermination calculation rules to provide payment of the net difference by the BSP to bank clients whenever the prevailing spot rate is higher than the NDF contract rate.