Peso least volatile currency in Asia – BSP

MANILA, Philippines – The Bangko Sentral ng Pilipinas (BSP) said yesterday that the peso remains the least volatile currency in Asia amid the heightened risk aversion brought about by the weak economic growth in advanced economies led by the US and the sovereign debt crisis in Europe.

BSP Governor Amando M. Tetangco Jr. said in an interview that the volatility and appreciation of the peso against the US dollar remains healthy, allowing Filipino businessmen, including exporters and importers, to plan more effectively.

He pointed out that the peso was the least volatile in the region with a rate of 1.23 percent followed by the Thai baht at 1.28 percent, the Chinese yuan at 1.34 percent, the Malaysian ringgit at 2.11 percent, Indonesian rupiah at 2.33 percent, the Singaporean dollar at 2.47 percent, and the Japanese yen at 3.13 percent.

“We are the lowest in terms of volatility,” he stressed.

In terms of appreciation, the BSP chief explained that the peso closed at 43.87 to $1 last Dec. 20, appreciating a mere 0.07 percent year-to-date against the greenback.

He pointed out that the rate of appreciation of the peso was slower compared to Singapore dollar’s 1.14 percent, Indonesian rupiah’s 1.5 percent, Malaysian ringgit’s 3.23 percent, the Thai baht’s 3.67 percent, the Chinese yuan’s 4.07 percent, and the Japanese yen’s 4.5 percent.

The peso used to be in the middle of the range in terms of volatility of the exchange rate as well as the rate of appreciation versus the dollar.

Tetangco said, the competitiveness of the peso improved as other currencies appreciated faster than the local currency.

The central bank has vowed to contain excessive volatilities in the foreign exchange market in order to “smoothen” the movement of the peso against the dollar to help business and consumers plan more effectively. It moves in response to market forces but with scope for central bank participation in the foreign exchange market to smoothen sharp fluctuations.

Other currencies continued to strengthen due to the weakness of the US dollar brought about by its fragile economic recovery as well as the strong growth in emerging economies particularly in Asia including the Philippines.

The BSP chief also pointed out that the flow of capital into emerging economies, including the Philippines, also determine the movement of the exchange rate.

Starting Jan. 1, 2012, the BSP is set to impose stricter rules on hedging instruments, particularly non-deliverable forwards (NDFs), to help curb speculative activity in the foreign exchange market.

The BSP’s Monetary Board has decided to impose a 50- percent increase in the market risk weight on NDFs to contain the excessive volatile movement of the local currency against the dollar.

An NDF is a forward contract between two parties to buy or sell an asset such as foreign exchange for an agreed price and settlement in the future. Counterparties settle the difference between the contracted NDF price and the spot price upon maturity.

The BSP agreed to assign a higher risk weight on NDFs equivalent to a capital adequacy ratio (CAR) of 15 percent starting January next year instead of the current risk weight equivalent to a CAR of 10 percent.

Last November, the Monetary Board approved the fifth phase of reforms in its foreign exchange regulatory framework to make it responsive and attuned with current economic conditions and make its easier for the general public to transact in foreign exchange within the banking system.

The BSP now allows unregistered private sector foreign loans to be paid using foreign exchange to be purchased from authorized agent banks (AABs) and their subsidiary or affiliate foreign exchange corporations (AAB-forex corps) within a three month period starting December to February.

The new rules allow AABs and AAB-forex corps to sell foreign exchange for advance payment of imports regardless of amount without prior BSP approval but subject to standard document requirements. –Lawrence Agcaoili (The Philippine Star)