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THE Bangko Sentral ng Pilipinas (BSP) is keen on creating a foreign exchange intervention framework within the year to better manage the central bank’s efforts to “contain stress” when it comes to Philippine peso.
On Thursday, BSP Governor Eli M. Remolona Jr. told Rotarians that the central bank must only intervene in the foreign exchange market “during times of stress.”
Remolona said the BSP has “been intervening a bit too much.” Containing stress, he said, means the central bank should intervene less in the foreign exchange market.
“We think intervention should only happen, during times of stress. It’s meant to contain stress. October 2022 was a stressful episode, for example. So those are the events in which we want to intervene,” Remolona told the Rotary Club of Manila at its first meeting for the new year.
“I think we’ve been intervening a bit too much. If it’s about containing stress, that also means intervention should be infrequent,” the BSP Governor added.
It may be recalled that the peso traded at its lowest in October 2022 at a monthly average of P58.8247 to the US dollar.
The peso was at its weakest in October 11, 2022 at P58.994 to the greenback and was at its strongest toward the end of that month on October 28 when the peso closed at P58.288 to the US dollar.
However, since that month, the peso has strengthened and is traded at P55.567 to the US dollar as of the end of 2023. On Thursday, the peso closed at P55.5 to the greenback.
Remolona said he has appointed Senior Assistant Governor Edna C. Villa to be the head of Financial Markets which is tasked to create the framework. The first order of business is to determine who the country’s peers are to better understand foreign exchange movements.
“How do you tell that it’s stress? One of the things we do is look at our peers. Hindi pwedeng dollar-peso lang eh [It can’t be just solely dollar-peso],” Remolona told reporters.
“So [one] homework is, who are our peers? Which countries are in the same boat as we are? That’s not clear yet. We have an idea, but there’s a need to review will who are really our peers,” he explained, speaking partly in Filipino.
The framework will be an ongoing process which will start with briefing the Monetary Board about foreign exchange movements. The BSP’s Monetary and Economics Sector (MES) will also be involved in the undertaking.
“So we want to do things in the right way. We want to do things based on fundamentals, but also based on what we know is going on in the markets,” Remolona said.
Grey list
Remolona said the government is also keen on exiting the grey list “as soon as possible” and that the next chance to do that is in October 2024, consistent with the statement from the Palace.
He said getting out of the grey list is crucial given the possibility of joining countries like North Korea, Iran, and Myanmar in the black list.
Entering the black list may have an impact not only on the country’s credit rating status but also Overseas Filipino Worker (OFW) remittances.
Earlier, Anti-Money Laundering Council (AMLC) Executive Director Matthew M. David said remittance costs could increase or more documentary requirements may be required before OFWs can send the much-needed financial lifeline to their families here.
David also said there is even the possibility that these remittance transactions may not be allowed to go through.
Remolona said by October, the country may already be able to accomplish the eight remaining tasks needed in order to be taken out of the FATF grey list.
“I think we will manage to accomplish those 8 by October. Hopefully we’ll get out of the gray list. We certainly don’t want to go get into the black list. The gray list is bad enough,” Remolona said.
The FATF placed the country on its grey list in June 2021 after it identified deficiencies in the implementation of Philippine rules and regulations against money laundering and terrorist financing.
It issued 18 action items the country needs to complete by January 2023 before it considers removing the country’s grey list status. Ten of the said action items were already fully implemented, while the remaining eight are still pending.
The deficiencies are preventing the government from achieving its self-imposed deadline of exiting from the grey list by January 2024 under Memorandum Circular No. 37 of Malacañang issued in October.
David disclosed that “most” of the eight remaining deficiencies identified by the FATF were only “partly addressed.”
Image credits: Nonoy Lacza
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