Authorities reactivate currency heading facility

With the peso further depreciating to its weakest level since 2005 and hitting a low of 154.66 to the US dollar on Friday, the Bangko Sentral ng Pilipinas (BSP) has decided to re-activate the Currency Rate Risk Protection Program (CRPP) which is the nondeliverable forward (NDF) facility, and allows banks and corporates to lessen their foreign exchange risk.

BSP Governor Nestor Espenilla said the central bank will re-activate tools such as the CRPP facility for eligible corporates with foreign exchange obligations based on more liberalized rules. “In addition, the BSP will take all actions necessary to deal with speculative activity by market participants,” he said.

The exchange rate volatility, in the meantime, is another element that has been presenting a risk to the BSP’s inflation forecasting.

The BSP said it will “update (the) program, particularly the eligibility requirements, to reflect more liberalized rules to reflect more liberalized rules.”

The CRPP was first implemented in 1997 and it is an NDF-hedging facility which is “aimed at alleviating demand pressures in the foreign exchange spot market from borrowers seeking to hedge their future foreign exchange exposures.” The BSP will make the CRPP available to eligible borrowers through the commercial banks.

For the past three policy meetings, the BSP has raised benchmark rate by a cumulative 100 basis points to manage and re-anchor inflation expectations which has remained elevated, and to protect the inflation target of two-four percent for 2019 and 2020.

The August inflation of 6.4 percent was the highest rate since April 2009, as supply and logistical issues continued to drive price pressures. The year-to-date average has risen to 4.8 percent in the first eight months.

Espenilla said the “unfortunate confluence of cost-push factors” pulled consumer prices higher. (LCC)