Tuesday, 12 October 2010 00:00
The Bangko Sentral ng Pilipinas (BSP) rules out controls on foreign exchange and adjustments to the deposit reserve ratio in the wake of copious foreign exchange inflows in recent months.
BSP Assistant Governor Ma. Cyd Tuano-Amador on Friday said such adjustments to the deposit reserve ratio were not needed for now despite the heavy volume of foreign inflows in the form of portfolio and foreign direct investments, export receipts, proceeds from business process outsourcing transactions and remittances of overseas Filipinos.
The value of the local currency, the peso, has risen in recent months as consequence of the inflows, making the country's exporters edgy and the beneficiaries of overseas remittances crying for some adjustments.
“We are not changing the (bank) deposit reserve requirement. There is a wide array of policy tools that we can call upon in mitigating the peso's appreciation,” Amador said.
The reserve requirement pertains to that part of deposits that banks may not lend and set aside and kept in the vaults of the central bank for contingent reasons.
This had been lowered to 19 percent from 21 percent in 2009 to inject more liquidity and ensure that banks, at the height of the global financial crisis at that time, have money to service the financing needs of borrowers.
Amador also reiterated the need to preserve the status quo as far as the settings on foreign exchange inflows are concerned.
“We continue to be very attentive and watchful. We have done an indepth study, doing empirical examination of what is happening in the asset market. The indications are that for the moment we are not seeing any fundamental misalignment in those asset prices,” Amador said.
Some countries like Brazil, have imposed a tax on foreign funds entering their financial system, partly in defense of their currency, the real.
The Philippine peso, as a result of foreign inflows and a weak dollar, has strengthened to P43.429 on Oct. 8, higher by an average of 49.2 centavos eight days earlier.
Amador said the BSP was not worried over the interest rate differential between the peso- as against dollar-denominated instruments.
“We are not worried about that because capital flows are not only attracted by interest rate differentials but by other factors as well.
”According to Amador, it is “inflation dynamics that continue to drive the policy action of the monetary board.
”She also said inflation, or the rate of change in prices, is seen to moderate some more in the coming months and allow the rate to average no more than 3.8 percent this year.
The actual nine-month inflation averaged only 3.7 percent thus far on the back of food and oil product-related prices having moderated in the intervening period or within forecast inflation ranging from three percent to four percent this year. (PNA)
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