BSP POISES ADDITIONAL MEASURES TO PROTECT PESO

MANILA,  February 24, 2004 (STAR) By Des Ferriols - The Bangko Sentral ng Pilipinas (BSP) issued stern warnings yesterday, telling banks that the Monetary Board could increase the liquidity reserve requirement by up to 30 percent if foreign exchange traders do not let up on the peso.

The BSP issued the statement early yesterday morning, containing veiled threats of regulatory backlash if banks are caught taking advantage of the political uncertainties that sent the peso plunging to its historic closing low of 56.35 against the dollar last weak.

BSP Governor Rafael B. Buenaventura said the Monetary Board is ready to use the tools available if the foreign exchange situation do not immediately improve.

The peso gained ground against the dollar moments after Buenaventura gave the warning, rising to 56.255 or 9.50 centavos higher from Friday’s historic low of 56.350 to the dollar.

Transaction volume amounted to $135.50 million on an average rate of 56.242 to the dollar.

Traders said the market found resistance at 56.35 to the dollar and most of the banks that maxed out their overbought positions at the end of last week’s session decided to cash in their profit during yesterday’s trading at the Philippine Dealing (PDS).

Buenaventura said the BSP will continue its tight watch on forex transactions, warning banks that they could be in trouble if caught aggravating the political uncertainties.

"Please control your traders," Buenaventura warned. "I won’t say anything right now, I wont say who we are looking at or what we are considering to do but there are things we can do that in the end will only hurt them."

A veteran banker himself and intimately familiar with the inner workings of the forex market, Buenaventura said the Monetary Board is fully aware of the developments in the currency market.

The BSP chief said the bank has not seen definitive evidence of speculation but warned that forex transactions are being monitored closely enough to detect any irregularity.

"My advise to banks is to be prudent because if we are forced to use options that we would rather not use, sila rin ang kawawa sa huli (they will be sorry in the end)," Buenaventura said. "We are warning banks to not take advantage of the situation. Do not take the short-term view," he stressed.

Aside from the possible use of extreme measures such as raising interest rates, Buenaventura said there are other tools available to the BSP that would make banks think twice before exerting too much pressure on the peso.

"We can raise liquidity reserve requirements," he said. "We can do 20 percent, maybe even 30 percent."

The BSP had already raised its liquidity reserve requirement last Feb 5, immediately taking out at least P30 billion from the banking system.

The liquidity reserve requirement was increased by two percentage points from eight percent to 10 percent.

Buenaventura said further increases in the liquidity reserve requirement is possible if the Monetary Board sees that the peso depreciation is no longer demand-driven and is beginning to have an adverse impact on the BSP’s inflation target.

Buenaventura made the statement after meeting with President Arroyo specifically to discuss the recent movements of the peso as well as the short-term projections in the light of on-going political uncertainties.


Reported by: Sol Jose Vanzi

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