BSP used $10B to prop up peso, pay debt

source; business.inquirer.net

The foreign exchange stock of the central bank, Bangko Sentral ng Pilipinas (BSP), stock outside of its official foreign reserves dwindled by $870 million in September following severe global shocks that emanated from Wall Street.

The central bank’s latest report shows foreign exchange locked in foreign currency swaps and not yet booked as part of the country’s gross international reserves (GIR) had fallen to $2.69 billion at end-September—the lowest so far this year—from $3.56 billion a month earlier.

The BSP has been selling US dollars heavily to temper the peso’s sharp depreciation since March. It has been intervening on the foreign exchange market while conserving its GIR. As a result, the foreign exchange swaps have decreased from an all-time high of about $13 billion in January and February.

According to the latest report, the central bank has unlocked about $10 billion from the foreign currency swaps so far this year, to flush US dollars onto the currency spot market or to service some debts.

Currency dealers said that in recent months the central bank provided liquidity to the foreign exchange market whenever the peso fell sharply during intraday trading.

In the past two years, the BSP used foreign exchange swaps as a tool to mop up excess foreign exchange in the financial system. It bought dollars on the open market and swapped them for pesos to prevent excess foreign exchange from pushing inflation up.

In September, about $312 million worth of foreign portfolio investments in Philippine stocks, bonds and bank products flowed out of the country—the worst such outflow so far this year.

It was in mid-September when Wall Street woke up to find two of its venerable investment banks gone—Lehman Brothers filed for bankruptcy and Merrill Lynch was sold to Bank of America. At the same time, the world’s biggest insurance firm, American International Group, teetered on the brink. AIG received an $85-billion lifeline from the Reserve Bank of New York. The turmoil on Wall Street brought global risk aversion to new heights, exerting pressure on local currency, stock and bond markets.

At end-September, the GIR was $36.69 billion, enough for 5.8 months’ worth of imports of goods and payments of services and income. With editing by INQUIRER.net