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MANILA - The Philippine government is slated to sell about $800 million worth of bonds to local investors in a bid to help the Bangko Sentral ng Pilipinas temper the peso's rise.
Sources told InterAksyon.com that the Department of Finance has signed up arrangers for the forthcoming dollar bond issuance that would be cater to foreign currency deposit units of local banks.
The DOF however has yet to determine the final amount and schedule, a source said.
Finance Secretary Cesar Purisima has yet to confirm the details of this planned transaction with InterAksyon.com as this went online.
Earlier, economists from the private sector asked the Bangko Sentral ng Pilipinas to temper its inflation-targeting stance, calling on the BSP to address first the problem of an appreciating peso that is already eroding the purchasing power of OFW families, earnings of exporters and viability of the local business process outsourcing
Dr. Victor Abola of the University of Asia and the Pacific told InterAksyon.com the BSP should sell bonds for additional capital.
"We don't really need to borrow abroad, we have more dollars here. If you have $150 billion in earning assets, they would kowtow to you rather than make money out of your exchange rate. They would say 'I'd rather get fee income from BSP than speculate on the exchange rate,'" Abola said, referring to foreign funds.
The central bank charter however bars any bond issuance, thus the BSP has been prodding the DOF to help it temper the local currency's rise since the national government has the flexibility of issuing bonds.
The national government "should leverage on ample domestic liquidity and start borrowing locally so they don't add to foreign exchange supply when they borrow abroad and contribute to the peso's strength. BSP has advised NG a number of times on this issue," BSP Deputy Gov. Diwa Guinigundo told InterAksyon.com in a text message.
According to the latest figures from the Development and Budget Coordination Committee, the Aquino administration is still retaining the 75-25 borrowing mix in favor of local sources.
In January this year, the Philippine government sold $1 billion worth of bonds to offshore investors to bridge its funding gap for the year.
Printing more money, subsidies
Guinigundo said monetary authorities appreciate the local economists' call for subsidies from the national government so the BSP can intervene more frequently in the foreign exchange market to keep the peso from rising too much.
"Perhaps this can be institutionalized by way of automatic recapitalization of the BSP when it incurs a loss after each year of foreign exchange action to moderate the peso appreciation," he said.
However, the amount of subsidy of at least P30 billion on a one-off basis is helpful for only less than a year. In 2007 alone, the central bank lost more than P87 billion.
"If the balance of payments will remain strong for the next few years, then the peso will sustain its firmness in the foreign exchange market, the P30 billion is quite small," Guinigundo said.
As to the recommendation that the central bank print more money, he said the BSP need not print more money.
"We have more than P1.8 trillion in special deposit accounts. If there is actual demand for funds, all the banks have to do is to unwind those SDAs and start lending. But it is not the BSP or monetary policy that is problematic here," Guinigundo said.
Interest rate cut
The BSP official has also thumbed down the proposal to ease interest rates to as low as 3 percent for the overnight borrowing facility, as this will only cause asset inflation in the country.
"What this proposal is engineering is not exactly a peso depreciation to help exports and the real sector but this may in fact lead to both merchandise/services price inflation and asset price inflation," Guinigundo said.
"Reducing the policy rates and inflation targeting are not exactly inconsistent as long as the inflation outlook will justify it. As it is, such proposal does not even stand on a single leg," he added.
The official said the economy is growing so there is no need to reduce the policy rates more.
"Inflation rate is at 3 percent, so why bring the rates to such a level that could trigger more problematic issues of asset price misalignment? Monetary policy is and should not be driven by narrow sectoral interests," Guinigundo said.
Even though the BSP has elbow room to cut interest rates further because of the benign inflation outlook, Guinigundo said it is conscious of other pressures building up like higher oil prices, power rate adjustments and the still soft global economy.
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