Philippine central bank expands hedging facility to ease FX risk

THE Philippine central bank amended its rules to encourage hedging against foreign-exchange risk, easing pressure on the peso which slipped to a four-month low last week.

The monetary authority expanded the coverage of the currency rate risk protection program or CRPP and loosened some requirements to encourage its use. The facility, which allows clients of larger banks to hedge their eligible foreign currency obligations or transactions through non-deliverable forwards, now includes non-trade transactions and investments.

“The lessons from last year’s weakness in the peso show that spillover of risks is inevitable in an increasingly global and interconnected world,” central bank Governor Felipe M. Medalla said in a statement on Tuesday.

The peso fell to P56.40 per dollar on April 20, its lowest since December 1. It has gained in the past three days, trading at P55.499 at 3:26 p.m. local time. The Philippine currency plunged to P59 in 2022.

Amendments in circular dated April 18 include:

Expansion of eligible foreign-exchange obligations and transactions to include non-trade transactions and investments

Aligning documentary requirements with existing regulations on foreign-exchange transactions and removing notarial rules

Operational changes such as the applicable US dollar interest rate to be used in the computation of the non-deliverable forward rate.

“The CRPP should enhance trading in the future,” said Nicholas Mapa, a senior economist at ING Bank N.V. in Manila. While the expanded hedging facility may have aided the peso’s recovery, mid-month corporate demand for dollars has also subsided, Mr. Mapa added. — Bloomberg