Manila Bulletin
The local currency was at the P42-level in May from P41 in April.
But the peso continued to weaken against the dollar following BSP's projection of a double-digit inflation in June. It closed at P45.01 to the dollar yesterday. Traders said authorities were continuing to temper the rate of peso depreciation by selling more dollars in the open market.
The BSP sterilizes its dollar-buying via FX swaps and when this matures, the central bank has the option of selling the FX in the market or to keep it as dollar reserves. In May some $ 3.8 billion of FX swaps matured, while in June, $ 2.97 billion matured. For the months of July and August, a total of $ 1.98 billion of swaps will mature.
As of end-May, BSP's FX swaps amounted to $ 6.3 billion from $ 9 billion in April, as it continues to return some liquidity into the system.
BSP Governor Amando M. Tetangco Jr. said earlier that the central bank is "reversing" its swap positions as they mature. He said this is the current form of the net outstanding FX swaps of the BSP, which is reversing or winding down.
Tetangco explained that depending on the other flows in the spot FX market at the time, "movements in the FX swaps market could ultimately affect the levels of both peso and dollar liquidity of the system (and) also impacting on the exchange rate."
For May, the BSP revised its report on the gross international reserves or GIR, which was actually lower by $ 390 million to $ 36.2 billion from $ 36.6 billion. The lower reserves were due to a lower level of foreign investments and of hard currency.
In the meantime total foreign investments, which the BSP said was $ 32 billion in the first week of June, was in fact lower at $ 31.8 billion, while foreign exchange holdings were also revised lower to $ 398.7 billion from previously reported of $ 455.6 million.
The BSP uses FX swaps to sterilize their US dollar purchases, which means less impact on the market. Transacting long positions in forwards in foreign currencies also help stem the rapid rise in gross international reserves. Including FX swaps the country's dollar reserves are almost $ 45 billion.
Presently, the BSP can transact FX swaps of up to 50 percent of the country's GIR, or about $ 18 billion.
At the forward date or maturity of the swap — this transaction is reversed or unwound and the liquidity is returned to the system.
"As you very well know our policy on the exchange rate is to leave its determination largely to the market forces," the central bank said. "(So) depending on the relative supply and demand for dollars at a given point, unwinding of FX swaps then could cause the exchange rate to either go up or go down."