Peso may have risen due to BSP’s CRPP hedge

THE central bank’s Currency Risk Protection Program (CRPP) may have helped the peso strengthen against the dollar, economists said.
Last month, the Bangko Sentral ng Pilipinas (BSP) issued guidelines for the reopened CRPP facility, which allows borrowers with obligations of at least $50,000 to hedge against foreign exchange-related risk.
The facility is a non-deliverable forward (NDF) contract between the BSP and universal and commercial banks that will allow them to hedge currency risk on behalf of bank clients.
The facility allows parties to agree that on maturity of the forward contract, only the difference between the contracted forward rate and the spot rate will be settled in pesos.
Michael L. Ricafort, economist at Rizal Commercial Banking Corp., said the CRPP reactivation helped ease demand for spot dollar purchases.
“[At the same time, it also] enables qualified importers to effectively and conveniently hedge their regular dollar purchase requirements,” Mr. Ricafort said in a text message.
The CRPP covers unhedged foreign-currency loans and payables such as BSP-registered short-term trade loans, medium to long-term trade loans maturing within 90 days from the date of the CRPP application, short-term trade borrowing made by oil companies from offshore banking units and dollar trust receipts, among others.
Hedging contracts last 90 days, although clients have the option to reavail, the BSP said.
Mr. Ricafort said the reactivation of the CRPP has supported the strengthening of the peso.
“It has indeed partly supported the recent gains of the peso, and at the very least, prevented further peso weakness in recent weeks,” he added.
The peso on Wednesday closed at its one-month high at P53.96 to the dollar.
UnionBank of the Philippines chief economist Ruben Carlo O. Asuncion acknowledged the possibility of the CRPP as a “significant factor” in the strengthening of the peso.
“The said policy may have been a significant factor in the continued strength of the peso,” Mr. Asuncion said in a text message Wednesday, noting that “solid evidence” is still needed to conclude that it is effective against volatility and market speculation.
The CRPP was introduced in 1997 to address the impact of foreign exchange volatility during the Asian Financial Crisis.
It was then updated in 2005. The last availment was in 2009. — Karl Angelo N. Vidal