A WEEK after declaring the reactivation of the Currency Rate Risk Protection Program, the Bangko Sentral ng Pilipinas (BSP) confirmed over the weekend it had approved the enhanced CRPP guidelines, making it more effective at easing the demand pressures in the foreign-exchange market.
The Central Bank last week announced that it is reopening the CRPP after the peso broke to trade into
12-year lows during the week.
On Wednesday it broke through the 54:$1 territory, closing at 54.13. The last time it breached the 54 level was on December 2, 2005.
The CRPP was first introduced as an aid to excessive foreign exchange swings during the 1997 Asian financial crisis.
In particular, it is a BSP-offered hedging facility through universal/commercial banks for clients who are seeking to hedge their borrowings denominated in foreign currency.
The CRPP operates through a non-deliverable peso-dollar forward (NDF) contract between the BSP and a universal/commercial bank. In an NDF contract, only the net difference between the contracted forward rate and the spot rate shall be settled in pesos upon maturity of the contract, thereby giving a layer of assurance for companies against fluctations in the foreign exchange market.
Under the enhanced guidelines, obligations eligible under the CRPP facility are the unhedged foreign currency obligations in amounts of not less than $50,000 that are current and outstanding as of the date of application.
These include the following: (a) BSP-reported/registered short-term (ST) trade-related loans from eligible banks; (b) medium or long-term trade-related FCDU (foreign currency deposit unit) or RBU (regular banking unit) loans with payments maturing within 90 days as of date of application; (c) ST trade-related borrowings of oil companies from offshore banking units (OBUs); and (d) US dollar trust receipts, among others.
The maximum tenor of the CRPP contract is 90 days with option to reavail.
The BSP also said it will provide various regulatory reliefs to facilitate the transactions under the CRPP facility.
“Exposures under the CRPP facility shall not be subject to NDF position limits. Moreover, reduced market risk capital charges shall be applied for net open positions for NDFs under this facility,” the BSP said. “Universal banks/commercial banks also do not need additional derivatives authority since transactions under the CRPP are considered generally authorized derivatives activities,” it added.
The peso ended the previous week’s trade at 53.97 to a dollar, slightly recovering from the 54.07 to a dollar the previous day. In September 2017 the peso averaged trade at 51.009 to a dollar, BSP data showed.