BSP: Impact of crisis on RP unwarranted
OF PHILIPPINE STOCKS, bonds and currencies given the worst financial meltdown seen in the United States and Europe in 80 years is “not warranted,” the Bangko Sentral ng Pilipinas said.
BSP Deputy Governor Diwa Guinigundo said Friday that the more than 15-percent depreciation of the peso against the dollar since the start of this year was not reflective of the actual foreign exchange flows in and out of the country.
“The peso at 48-49, it’s not warranted by good fundamentals,” Guinigundo said. “We have a (balance of payments) surplus and remittances from overseas Filipino workers continue to come in.”
The BOP measures the foreign exchange transactions between the local economy and the rest of the world. Any transaction that gives rise to outflows like a pullout of foreign investments, importation or debt servicing is a deficit item in the BOP while any that gives rise to inflows like borrowing, exporting or overseas remittance is a surplus item.
“It’s an issue of confidence driven by market sentiment,” Guinigundo said.
For purposes of economic and fiscal budgeting, the government’s interagency committee has assumed a foreign exchange rate range of 42-45 to a dollar for this year and next. The central bank has been actively unloading dollars at the Philippine Dealing System to temper the peso’s depreciation since March this year.
The peso hit a 22-month low of 49 last week and closed Friday at 48.991 against the greenback.
Guinigundo also lamented that the spreads of Philippine credit default swaps (CDS), which are insurance-like protection against debt default, has now widened to more 700 basis points from about 250 points before the global financial turmoil. (One percentage point is equivalent to 100 basis points.)
He said the central bank would continue to look for ways to boost the flow of money in the local financial system. The central bank recently opened a new lending window for banks in need of foreign exchange as well as a US dollar deposit facility for those with excess foreign exchange.
The BSP has also agreed to enhance a lending window for those in need of peso liquidity by giving borrowers a higher amount of cash against the government securities used as collateral for these loans.
The lending facility is in the form of a repurchase agreement wherein banks can use their holdings of government bonds to immediately avail themselves of liquidity. But in the case of the US dollar repurchase agreement, the banks will have to use their holdings of foreign currency-denominated Philippine bonds as collateral.
The Bangko Sentral also approved recently another “precautionary” measure against the global financial meltdown -- by giving financial institutions greater flexibility in booking investments in bonds and equities to improve their capacity to generate profits.
The central bank is also studying a potential reduction in the reserve requirement as another measure to boost liquidity and confidence in the local financial system.
The reserve requirement, currently set at 21 percent, is the ratio of deposits that banks are required to keep in a low-yielding facility with the central bank
Source:
Philippine Daily Inquirer
First Posted 21:47:00 10/26/2008