The Monetary Board has recently approved the operational amendments and expanded the coverage of the Currency Rate Risk Protection Program (CRPP), intending to encourage the availments of the hedging facility by increasing its availability, to relieve pressures in the foreign exchange (FX) spot market.
Facade shot of the BSP office in Manila (IMAGE CREDIT: www.bsp.gov.ph)
The CRPP facility is a non-deliverable peso-US dollar forward contract between the Bangko Sentral ng Pilipinas (BSP) and the universal and commercial banks that allows bank clients to hedge their foreign currency obligations or transactions to address foreign currency fluctuations and lock the exchange rate to a determined rate.
While the Philippine economy was projected to have a strong rebound following the effects of the pandemic, local recovery was hampered by externalities from global developments.
The prospects of aggressive interest rate hikes by the US Federal Reserve, concerns over the impact of the Russia-Ukraine war, and imposition of tighter restrictions in China are among the external factors that contributed to the depreciation of the Philippine peso in line with comparable regional peers in 2022.
Lessons from last year’s peso weaknesses considered
In a media advisory, BSP Governor Felipe M. Medalla said, “The lessons from last year’s weakness in the peso show that spillover of risks is inevitable in an increasingly global and interconnected world. Hence as the peso stabilizes, we find this an opportune time to strengthen Filipino resilience. The CRPP had to be revamped to increase its availability to banking clients. We did this by streamlining and easing the requirements and expanding the coverage of eligible FX transactions.”
Documentary requirements have been aligned with the existing regulations on FX transactions and have eliminated the notarial rules to enable expeditious applications.
Further, FX obligations and transactions eligible for the CRPP Facility have been expanded to include non-trade transactions and investments from the original trade-related coverage.
Other operational amendments include the change in the applicable USD interest rate to be used in the computation of the NDF rate following the cessation of the LIBOR benchmark, the removal of the 1:00 PM to 2:00 PM trading window, and the change in maximum tenor.
The CRPP Facility serves as a tool for the effective management of foreign currency exposures amid exchange rate volatility. It is a continuing facility that allows clients of Universal and Commercial Banks (UKBs) to hedge their eligible foreign currency obligations/transactions through non-deliverable forwards. Clients who wish to tap the CRPP Facility may deal with their respective UKBs.
The UKBs shall then transact directly transact with the BSP for bank clients who wish to avail of the CRPP Facility. Only net payments shall be settled by BSP or the counterparty bank at the maturity of the contract.
Other changes in the CRPP facility rules include the change in the applicable US dollar interest rate to be used in the computation of the non-deliverable US dollar-Philippine peso forward contract rate following the end of the use of the London Interbank Offered Rate (LIBOR) benchmark, the removal of the 1-2 p.m. trading window, and the change in maximum tenor.
For more details, please refer to Circular No. 1172 dated April 18, 2023.