Philippines Uses Dollar Pile Against Speculators, Governor Says

(Bloomberg) -- The Philippine central bank sells dollars from its pile to curb excessive peso volatility against speculators using a cut in banks’ reserve ratios “as pretext,” Governor Nestor Espenilla said.

The peso, the worst-performing among emerging markets next to the Argentine currency, fell the most in three weeks on Feb. 19 after the Bangko Sentral ng Pilipinas (BSP) announced a cut in lenders’ reserve requirement ratio (RRR) to 19 percent from 20 percent. While the move effective March will free up 90 billion pesos ($1.7 billion) from banks’ vaults, Espenilla said this isn’t monetary easing.

In written remarks from Jerusalem sent in a mobile-phone chat group with reporters Sunday, Espenilla also revealed he was diagnosed with “very early stage” tongue cancer in November, had surgery and radiation therapy and is now cancer free.

Below are Espenilla’s comments:

• “If BSP wants to change the monetary policy stance, BSP will signal that overtly, by changing the policy rate (overnight reverse repurchase rate or RRP). But it can also do that more subtly without necessarily changing the RRP rate, by allowing the market-determined TDF (term deposit facility) rates to rise (or fall) by altering auction volumes.”
• “The establishment of this new IRC (interest rate corridor) mechanism since 2016 has given BSP the fine maneuvering room to conduct monetary policy and gradually bring down RRR. The speed and timing of the RRR phase-down is largely a function of the liquidity absorbing ability of OMO (open market operations). Therefore, analyst fears of ensuing looser monetary policy that can fuel more inflation is really unfounded.”
• “Moreover, to the extent that speculators use RRR reduction as pretext for peso depreciation, BSP sells FX from its reserves to manage excessive peso volatility. That in itself also has the effect of draining peso liquidity from the system, which causes a self-correction.”
• “The bottom line, the BSP has many options to maintain firm monetary control. The key reason it is lowering RRR is to promote a more efficient and level financial system that’s less biased against deposit-taking financial institutions which creates market distortions. This is really in a sense part of a grand normalization process. Alongside capital market reforms and FX liberalization.”
• “Implementing these reforms is both complex and exciting. It is a very absorbing endeavor for me. Unfortunately, I got a curve ball in November last year when I was diagnosed with tongue cancer. Fortunately, it was very early stage and quite localized. I underwent surgery soon after to remove the problem. That was successful. My doctors say I’m now cancer-free. So I don’t expect this curve ball to slow me down.”
• “For insurance, I also had to go through radiation therapy as advised by doctors. That’s completed now. However, radiation therapy has unavoidable side effects. Mainly causing speaking difficulties for me due to dry throat and mouth sores. That should go away in time and my doctors expect me to achieve more or less full recovery in a month or so. Now, that’s my personal normalization. I just have to hang on and be patient. Meanwhile, it’s work as usual for me. Onward with the financial market reforms.”

To contact the reporter on this story: Clarissa Batino in Manila at cbatino@bloomberg.net.

To contact the editors responsible for this story: Stanley James at sjames8@bloomberg.net, John McCluskey

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