By LEE C. CHIPONGIAN
The Bangko Sentral ng Pilipinas (BSP) prefers not to disclose how and when they are intervening in the foreign exchange (FX) market as this kind of information may spike speculative activities.
The discussion arose after the International Monetary Fund (IMF) – in an annual member-country assessment – recommended full disclosure of the central bank’s FX intervention for better communication and transparency.
In an IMF report, it said: “Publishing FX intervention data could be considered, with appropriate lags and aggregation to guard against market sensitivities… this step may further enhance clarity and transparency of the BSP’s inflation targeting framework, given the occasional use of FX intervention.”
In 2018, when there was high inflation in the country, the BSP has identified FX volatility as one of the factors that aggravated price pressures even further. The erratic FX movements also disanchored inflation expectations at the time. Inflation rate peaked at 6.7 percent in September and October 2018 because of high global oil prices and problems in rice supply.
The IMF has noted that as far as the BSP is concerned, and the multilateral agency agreed, the exchange rate is a significant buffer and shock absorber amid volatile capital flows. But it could perhaps serve the market better if traders know for sure if the BSP is actively smoothening out the FX or spot market.
“The exchange rate should remain a primary shock absorber,” said the IMF. It said the BSP have “generally let the exchange rate move freely in line with market forces (and) this policy has served the Philippines well and should be continued, and FX intervention should continue to be limited to avoiding disorderly market conditions.
As for the BSP, on publishing the FX intervention data, the report said the BSP “were of the view that the market already had a good understanding about the BSP’s FX intervention activities from publicly available data. Further disclosure of FX intervention data was likely to encourage speculation, with little tangible benefit.”
Some central monetary authorities, including the European Central Bank, have announced intentions to improving how they communicate their FX intervention and will start releasing this information on a quarterly basis this year for more transparency.
The Bank of Korea has also started to disclose its FX intervention activities.
The BSP currently follows a market-oriented FX rate policy which limits intervention since the "role of BSP is principally to ensure orderly conditions in the market." It will only intervene to smoothen excessive currency volatility.
In 2018, the BSP reactivated the Currency Rate Risk Protection Program to temper demand pressures in the FX spot market as it breached the ₱54:$1 level, which was the weakest level for the peso in the last 13 years.