By Lee C. Chipongian
The Bangko Sentral ng Pilipinas (BSP) is not actively accumulating US dollars at the moment which at the P52 level is quite appealing for stocking up on reserves.
“We are resisting from buying,” said BSP Governor Benjamin E. Diokno. As of Friday, the exchange rate was back at P52.04 from the previous close of P51.74.
“At this rate it’s very attractive for us to buy but we have very hefty reserves of $84-$85 billion, so what are we going to do with those dollars? It’s our war chest,” Diokno told Manila Bulletin.
“If there are speculators against us, we’ll burn them,” he warned.
The BSP will only intervene in the exchange rate market to stop excessive peso-US dollar exchange rate volatility and prevent the local currency from rapid depreciation because of speculative activities. The BSP is also confident that the exchange rate market has enough flexibility to self-correct.
The BSP’s Monetary Board is on an expansionary policy mode after reducing both interest rates and reserve requirement ratio (RRR) last month. It cut overnight benchmark rates by 25 basis points (bps) last May 9, and slashed the RRR by 100 bps last May 31, releasing around P95 billion of fresh funds in the financial system. The RRR will be reduced by another 100 bps for big banks by end-July, while the smaller banks will also have lower RRR, or reduced by 200 bps for thrift banks, and 100 bps for rural banks.
With excess money, banks may be tempted to buy and speculate on the exchange rate market as what apparently happened the last time the BSP reduced the RRR. But Diokno has already dissuaded the market from playing up currencies trading and has warned banks to behave or further refinements to the RRR could get shelved.
Diokno said the BSP is refraining from accumulating US dollars – and leaving the exchange rate market to fend itself – because the country’s main sources of foreign exchange is intact and steady.
“Every year we have a steady supply of (US) dollars. We have lots of bullets. Every year, we have about $30 billion from the OFWs (overseas Filipino workers), and we have $30 billion from the BPOs (business process outsourcing),” he said. “Tourism is picking up and we have FDI (foreign direct investments) which is very sound. In the last two years its reached $10 billion … and I think it’s going to increase. There’s lots of interests in the Philippines right now.”
In the first five months of the year, the BSP reported gross international reserves (GIR) of $85.02 billion, up from end-April’s $83.88 billion and significantly more than same time last year of $79.20 billion.
Before Diokno was appointed BSP chief last March 4, the BSP has been hoarding foreign exchange at the end of 2018 and in the early months of 2019, boosting the external sector side and reversing months of balance of payment shortfalls into surpluses.