No plans to tighten forex rules – Medalla

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) is active in the foreign exchange market and selling strategically to prevent excessive volatility as the peso slumped to new record lows because of the continued strengthening of the dollar versus other currencies, its governor said.

“We are active. But of course, we sell strategically. There are times, it’s wiser to keep your powder dry and shoot later,” BSP Governor Felipe Medalla said Friday night on the sidelines of the Annual Reception for the Banking Community.

The peso sank to a record low of 59 to $1 on Oct. 3 as the greenback continues to strengthen against other currencies on the back of expectation of more aggressive rate hikes by the US Federal Reserve to fight inflation.

This was 15.7 percent weaker than the end-2021 level of 50.999 to $1, making the peso one of the worst performing currencies in the region.

The peso appreciated to 58.65 on Oct. 4 and 5, but weakened to 58.653 on Oct. 6 and further to 58.92 on Oct. 7.

“There are so many other things that are happening outside the Philippines right now that is actually causing the dollar to weaken. It’s very fluid. I cannot tell you what we will be doing, but we will not allow excessive appreciation. But I will not tell you what excessive appreciation means,” Medalla said.

A day after the peso hit a new all-time low, the BSP issued a statement reminding participants to buy all of their dollar requirements from legitimate sources, to mitigate speculative moves, so as not to add volatility in the foreign exchange market.

“Don’t divert the dollars outside the banking system. Because the temptation is when the peso is devaluing, the dollars will go to the gray market,” the BSP chief said.

This, in turn, may increase the differential between the official and unofficial exchange rate.

“We are saying, as much as possible use the banking system,” Medalla said.

According to Medalla, the BSP is able to service all legitimate dollar transactions.

“The US dollar spot market remains open and active while forwards and repos are available facilities. All of these can move the economy forward by supporting the financial leg underpinning economic activity and allowing for an orderly settlement of US dollar obligations. This puts the Filipino in a better position,” the BSP had said.

It added that the central bank is taking steps to manage any disruption in the financial market.

“We ask those who have the means not to take undue advantage of changing market conditions. This does not help the Philippine peso; it does not help the Philippines. What we can do is to bring all transactions into an organized and accessible formal market that offers consumer protection,” the BSP said.

Medalla said there is currently no plan to tighten the rules on foreign exchange transaction. “The current rules on foreign exchange are good enough,” he said.

For cross-border transfer involving foreign currency, a person may freely bring into or take out of the Philippines foreign currency and other bearer of monetary transfers in amounts up to $10,000, while amounts exceeding the threshold must be declared.