Monetary Board imposes disincentive to forex speculation

The Bangko Sentral ng Pilipinas has decided to impose a disincentive on money placements in “non-deliverable forwards" (NDFs) in a bid to curb foreign currency speculation. "We [in the BSP] are also cognizant that speculators have been attracted to NDFs as a money market instrument and for that reason, we need to put in place pro-active and prudential measures. This is a calibrated and proportionate response," BSP Governor Amando Tetangco Jr. said. NDFs are contracts on the future sale of assets, usually foreign exchange, at an agreed price. Tetangco revealed that the BSP Monetary Board decided to assign a higher risk weight to NDFs when computing for the capital adequacy ratios (CAR) of banks. The MB raised the NDF risk weight to 15 percent from 10 percent. "This reinforces the view that there is more to NDF activity than just an intention to hedge. With market trends still vulnerable to the on-going macro-financial difficulties in Europe and in the US, NDF exposures pose heightened market risk from the market's volatility," he added. Last June, the BSP required banks to submit daily reports on their NDF transactions so it could closely monitor how much foreign currency is being parked in NDFs and at what exchange rates. — ELR/VS, GMA News