dollar rules

BSP eases rules for dollar repo
by Jun Vallecera/BMirror/11.24.08

BANKS may now offer as collateral long-dated dollar-denominated ROPs when they borrow from the central bank’s dollar-repurchase window.

ROPs stand for Manila’s sovereign debt notes denominated in US dollars with maturities of up to 10 years under current guidelines drawn earlier by the Bangko Sentral ng Pilipinas (BSP).

Banks seemed to have run out of ROPs with maturities of 10 years
and below. Hence they urged the BSP to rework the guidelines so that longer-dated ROPs could be used as collateral for borrowings under the central bank’s dollar-repurchase window.

That banks were pushing for longer-dated ROPs as collateral surprised BSP Governor Amando Tetangco Jr., since the guidelines on this have since already been issued.

“The BSP issued a circular and a memorandum to banks the other week liberalizing the guidelines for the US dollar-repo facility. This included the acceptance of dollar-denominated ROPs with remaining maturity of over 10 years,” he said in a text message.

The BSP’s dollar-repurchase window has been made readily available to banks weeks earlier to address what had been described as a perceived inability to obtain commercially available foreign exchange in the market.

Tetangco wanted to dispel the view that foreign exchange, particularly US dollars, has turned difficult to source in the market. That perception pressured the peso against the US, now that the exchange rate is threatening to break the psychologically vital resistance level of P50 per dollar.

Accepting ROPs with maturities beyond 10 years may ease the pressure on banks to put up eligible collateral under the dollar-repurchase window, according to Tetangco.

Apart from the repo facility, the BSP earlier adopted other liquidity-enhancing measures to ensure the flow of credit to corporations and households that need money.

In the US and the European Union, banks and financial institutions have begun turning down new loans for fear that borrowers, pressed for credit in these challenging times, would default on their commitments.

Tetangco is noted that domestic borrowing continues to show positive growth based on data that is at least three-months old.

There is fear, however, that lending has slowed down enough to compel the BSP to adopt preemptive measures to ensure the availability of credit and keep the economy moving.

Such measures include a reduction of banks’ deposit-reserve requirement and the doubling of the BSP’s rediscounting window.