BSP studying new tool to curb speculative FX trades

THE BANGKO SENTRAL ng Pilipinas (BSP) is readying a new measure that would ward off speculative players in the foreign exchange (FX) market, as the regulator searches for new ways to quell sharp swings in the daily peso-dollar trading.

BSP Governor Nestor A. Espenilla, Jr. said the Monetary Board is currently studying a tool that would actively limit speculative currency trades, in a bid to reduce pressures on the peso.

“We’re looking at some other measures on the regulatory side to try to curb speculative activity,” Mr. Espenilla told reporters on the sidelines of a signing ceremony yesterday. “Pinag-aaralan pa, we want to understand better how to do it.”

In recent weeks, policy makers have been vocal about “excessive volatility” in the currency market and noted that these warrant close monitoring.

The peso has breached fresh 12-year lows this September as the local unit broke the P54-to-$1 level last week. The currency weakened anew to close at P54.11 on Monday.

Mr. Espenilla said they have seen increased speculative trades recently, which have been driving greater demand for the dollar to the detriment of the peso. These refer to knee-jerk dollar purchases without an underlying transaction where it will be used.

“It always happens. The market is very opportunistic so on news, they operate,” the BSP chief said, although refusing to give more details about the planned measure.

Mr. Espenilla said they are “rushing” the approval of these new rules.

“There are many things to look at. Documentation is one way to tell whether a transaction is speculative if there’s no underlying documentation,” he said. “A lot of the trades are NDF (non-deliverable forward contracts), and if there’s an NDF and there’s no documentation, what does that look like? Those are the things we are looking at.”

The BSP is also looking to put more teeth into the existing code of conduct for currency traders, with plans to make the rules binding and make traders accountable to the central bank.

Last week, the BSP also announced guidelines for the Currency Rate Risk Protection Program, where bank clients with foreign currency obligations worth at least $50,000 can hedge their exposures for exchange rate losses for a 90-day period.