entral bank plans further easing forex rules

Aim is to slacken peso’s rise

By Daxim Lucas
Inquirer
Last updated 04:21am (Mla time) 07/25/2007

The central bank, Bangko Sentral ng Pilipinas (BSP), is planning to liberalize further the foreign exchange regime in the coming weeks in an effort to slacken the appreciation of the peso against the US dollar, BSP Governor Amando Tetangco Jr. said.

 

The rules limiting local residents from buying foreign currency will be further relaxed within the quarter, Tetangco told reporters.

 

He replied in the affirmative when asked whether the fresh liberalization round would include relaxation of documentary requirements on dollar purchases and encouraging more overseas investments by locals.

 

He declined to give more details.

 

“We will implement these [changes in the rules] soon,” Tetangco said. “We want to give banks and non-banks greater latitude in investments.”

 

The central bank hopes that making it easier for residents to buy foreign currencies and to invest overseas will help it rein in the peso’s sharp rise, which Tetangco said had become a cause for concern.

 

Apart from impacting negatively on the export sector, the BSP chief said the rapid appreciation of the peso was also causing volatility in the foreign exchange market.

 

Tetangco’s comments helped cool the peso yesterday afternoon after the local currency hit a fresh seven-year high during trading in the morning.

 

On the spot market Philippine Dealing System, the peso on Tuesday touched 44.70 to the dollar, ignoring warnings made by credit watcher Fitch Ratings that the government would likely exceed its budget deficit cap of P63 billion this year.

 

The peso ended trading Tuesday 44.82 to the dollar, compared with Monday’s close at 44.81.

 

The trading volume was $482 million.

 

Last February, the central bank’s policy-making Monetary Board relaxed foreign exchange rules, allowing banks and individuals to buy more dollars.

 

The changes, which took effect in April, include an increase in the amount of foreign exchange that residents can buy from banks without supporting documents to $10,000 from $5,000.

 

BSP also increased the maximum offshore investments of residents without its prior approval and registration to $12 million a year from $6 million, and raised the overbought limit of banks to 20 percent of unimpaired capital from 2.5 percent, with an absolute limit of $50 million.

 

The central bank also waived the notarization requirement for buyers of foreign exchange.

 

At that time, Tetangco said “improving macroeconomic fundamentals as well as ongoing banking, capital market and institutional reforms provide a favorable setting for the comprehensive review and gradual reform of the existing foreign exchange regulatory framework.”

 

That round of liberalization of forex rules, however, failed to slow down the peso’s rise.

 

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