Authorities mull further relaxation of forex rules

MANILA, Philippines - Monetary authorities are evaluating if there is a need to further relax foreign exchange regulations as the Bangko Sentral ng Pilipinas (BSP) looks at counteracting large capital inflows, central bank officials said yesterday.

“At this point in time, while there are no specific additional measures, we continue to evaluate and assess if further steps are needed to be taken to address capital inflows,” BSP Governor Amando Tetangco Jr. told reporters on the sidelines of the inaugural conference of the Agra Centre for Law and Economics in Pasay City.

There were five actions made by the BSP to liberalize foreign exchange regulations, he explained, and so far “there has been substantial opening up of the foreign exchange market.”

The latest move was conducted in Nov. 2011 when the BSP, among others, allowed advances of import payments without prior BSP approval and gave more leeway to citizens and companies that would want to purchase foreign currencies.

A more open foreign exchange market has various effects depending on the kind of relaxation undertaken. The November liberalization, for example, made by BSP will make it easier for the public to conduct foreign exchange transactions such as paying for their importations.

As a result, demand for the US dollar is expected to increase, thereby, weakening the peso whose too much appreciation is seen to trim export earnings and value of remittances from overseas Filipinos.

BSP Deputy Governor Diwa Guinigundo said in a text message the new relaxation of the foreign exchange market will “basically encourage outflows in both current (imports, services) and capital (outward investment) transactions to help address the issue of capital inflows.”

However, the deputy governor said such moves will only be made to “counteract” inflows that tend to distort the foreign exchange market.

The sluggish growth in the United States and the eurozone debt crisis will also be considered, Tetangco said. He pointed out that these are being counterbalanced by the Philippines’ good macroeconomic standing characterized by faster growth and slower inflation.

The BSP chief said “so far, we are able to manage the impact of inflows” to the economy.

“Philippines is doing well. We had a fast growth (in the first quarter), inflation is manageable, external position is robust, and a sound and stable banking system. These are factors that would serve to sustain economic performance,” he explained.

Philippine economy grew by a stellar 6.4 percent in the first quarter. Meanwhile, inflation has settled at three percent as of the first half of the year or at the lower end of BSP’s three- to five-percent target for 2012.