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Bangko Sentral Expands Coverage of the Currency Risk Protection Program

07.19.2001

BSP Governor Rafael Buenaventura announced today that the Monetary Board of the Bangko Sentral approved the expansion of the coverage of the Currency Risk Protection Program (CRPP) by providing a hedging mechanism to a greater number of users. Such a move is expected to relieve the pressure on the spot market created by market players wanting to frontload their future foreign currency requirements and by borrowers wanting to cover unmatured foreign currency obligations.

The eligibility rules of the CRPP have been expanded to include the following sectors:

  • Net importers;
  • Registered foreign currency-denominated bonds and FCDU loans with the original maturities longer than one year up to 5 years; and
  • OA/DA and other trade transactions of clients other that oil companies, including manufacturing.

Under the Monetary Board decision, banks may also be allowed to enter into long-term cross currency basis swaps with foreign investors. This is expected to address the hedging requirements of qualified users with long-term foreign currency obligations, and help attract foreign direct investments into the Philippines.  In addition, the Monetary Board approved the review of the pretermination calculation rules to provide payment of the net difference by the BSP to bank clients whenever the prevailing spot rate is higher than the NDF contract rate.

The opening of the CRPP in December 1997 did much to return calm to the foreign exchange market in the following years. Its coverage was expanded in October 2000 to include oil importations.  The CRPP facility is a non-deliverable forward contract (NDF) between the BSP and the commercial bank with the foreign exchange obligations of bank clients as the underlying transaction. 

Governor Buenaventura emphasized that the expansion in the coverage and the maturity structure of the CRPP is not expected to lead to a drain on the international reserves of the BSP, since the settlement of the forward contracts will be in pesos and will cover only the net difference between the contracted forward rate and the prevailing spot rate at maturity.

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