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'Forex market tweak tools bigger than GIR'

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THE Bangko Sentral ng Pilipinas (BSP) assured the public that its arsenal to intervene in the foreign exchange market is much larger than the country’s reserves.

The country’s Gross International Reserves (GIR) includes Overseas Filipino remittances, business process outsourcing, and foreign direct investments.

Under its expanded toolkit which is also in line with the central bank’s price stability mandate, the BSP is now employing the reserves to sell dollars to help manage foreign-exchange movements.

“The tools that we can use for intervention are much larger than our reserves,” Central Bank Governor Felipe M. Medalla said. The central bank chief also explained that while the GIR now represents lower import cover compared with earlier months, BSP may tap other sources of dollars.

As a matter of policy, the BSP’s participation in the FX market is limited to tempering sharp fluctuations in the exchange rate. The BSP does not target nor avoid any level of the peso and does not alter currency trends.

However, BSP stands ready to provide liquidity and ensure that legitimate demands for foreign currency are satisfied when warranted.

In accordance with its mandate of ensuring price stability, the BSP consistently signals to the market its unwavering commitment to use the tools at its disposal to stabilize the exchange rate.

“You have to come in and reduce the volatility,” Medalla said. “This underscores the importance of a credible central bank.”

Robust GIR

AT end-September this year, the GIR remained robust at $93 billion, providing an external liquidity buffer of 7.4 months’ worth of imports of goods and payments of services.

This exceeds three months’ worth of imports that the International Monetary Fund (IMF) suggests as a standard in reserve adequacy.

Meanwhile, the BSP on Wednesday increased the offer volume in the term deposit facility (TDF) to P380 billion from last week’s offering of P280 billion.

The total volume was allocated between the 7-day and 14-day tenors at P220 billion (from P170 billion) and P160 billion (from P110 billion), respectively.

Both tenors were undersubscribed with bid-to-cover ratios at 0.66x and 0.73x the respective offerings in the 7-day and 14-day TDF.

Total tenders received amounted to P261.287 billion, lower than the BSP’s range of expected volume.

“The results of the TDF auction reflect the weaker demand for the BSP deposit facility following the All Saints’ Day holidays as well as the lower excess liquidity in the short term,” BSP Deputy Governor Francisco Dakila Jr. said.

“Looking ahead, the BSP’s monetary operations will remain guided by its assessment of the latest liquidity conditions and market developments,” he added.

Of the total bids received, the BSP accepted P243.687 billion, of which P127.778 billion were awarded in the 7-day tenor and P115.909 billion in the 14-day tenor.

The weighted average interest rates (WAIR) for the awarded bids in both tenors continued to rise from the previous week. The WAIR for the 7-day tenor increased by 14.2245 bps to 4.9569 percent as that for the 14-day tenor rose by 15.2243 bps to 5.0567 percent.

The yields accepted in the 7-day TDF shifted higher but were at a steady range of 4.8000-5.1500 percent. On the other hand, the yields accepted in the 14-day TDF shifted upward and widened to a range of 4.7500-5.3500 percent.