Peso rises further to 42.62

Investments in local stocks, bonds boost peso against the greenback; Bangko Sentral hikes capital charge on dollar forwards

The peso completed its biggest weekly gain since 2009 after progress on solving Europe’s debt crisis eased concern the global economy will go into recession, boosting the appeal of emerging-market assets.

The currency touched a seven-week high Friday after European leaders agreed to a 50-percent writedown of Greek debt and to expand their bailout fund to 1 trillion euros ($1.4 trillion). Bangko Sentral ng Pilipinas has intervened in the foreign-exchange market to ensure orderly trading and reduce volatility, Deputy Governor Diwa Guinigundo said Thursday.

“We are seeing a resumption of risk appetite in emerging markets across asset classes,” said Estelito Biacora, senior vice president for treasury at Bank of the Philippine Islands in Manila. “The positive developments in Europe are providing increased flows in equities and bonds, supporting the regional currencies.”

The peso climbed 1.9 percent to 42.62 per dollar this week, according to Tullett Prebon Plc. That was the biggest weekly gain since December 2009. The currency strengthened 0.6 percent Friday and touched 42.53, the strongest level since Sept. 9. Financial markets are shut in the Philippines on Oct. 31 and Nov. 1 for holidays.

The Bangko Sentral, meanwhile, has increased the capital charge on hedging instruments or forward transactions in a bid to moderate the volatility of the peso movement against other currencies.

The Bangko Sentral said the Monetary Board approved the increase in the market risk weight of the so-called non-deliverable forwards to reflect the potential systemic risk from NDF transactions as a result of the increased volatility in the foreign exchange markets.

An NDF is a short-term, cash-settled currency forward between two parties who have agreed to settle the difference between a contracted rate and the prevailing spot price.

Under the standardized approach for calculating capital adequacy, the outstanding balances of instruments which are dependent on market rates are multiplied by assigned risk weights. Summing the product across all related instruments will generate the market risk component of the capital adequacy ratio.

The net open position of NDFs currently carries a market risk capital charge consistent with a capital adequacy ratio of 10 percent. Under the new measure, NDFs will be assigned a higher risk weight equivalent to a CAR of 15 percent.

“To ensure an orderly transition to the new capital charge and to allow modifications in the Bangko Sentral template for calculating CAR, the higher weights will apply to the net open position of NDFs on Jan. 1, 2012,” said the Bangko Sentral.


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