BSP gov says no to forex controls

Bangko Sentral ng Pilipinas (BSP) Gov. Rafael B. Buenaventura said yesterday he is against the imposition of foreign exchange controls in the wake of recent speculative attacks on the peso.

"Except as a last resort, the imposition of any form of foreign exchange control at this time will be easily misunderstood abroad," Buenaventura said

"We cannot afford any bad news now," he warned, adding that "imposing foreign exchange controls would be a last resort if absolutely needed."

Buenaventura also indicated that he is not in favor of a proposal by the Supervision and Examination Sector (SES) to impose the same documentary requirement for every foreign exchange transactions which will make it more difficult for banks to speculate in the market.

"It will be counterproductive," he said.

Buenaventura also pointed out that the BSP is trying to use "moral suasion" explaining that there "are other ways to skin a cat."

The BSP is also trying to hold off on a further increase in overnight rates which is supposed to dampen speculative activity but which could adversely affect productive economic borrowing.

Buenaventura said a further adjustment in the overnight rate will depend on several factors which include any further increases in the US interest rate, movement in the inflation rate, stability of the foreign exchange rate and loan demand.

Buenaventura acknowledged that the peso is expected to remain at current levels and will not likely improve substantially despite BSP's move to closely monitor the foreign exchange transactions of the banking system.

The BSP is keeping a closer look at the foreign exchange activities of local banks particularly after it noted that local banks were responsible for the speculative play against the peso in the past two weeks.