Emerging Markets Rates and Currencies Handbook

35 Citi | Emerging Markets Currencies Handbook 2021 PHILIPPINES (PHP — Philippines Peso) Citi in Philippines Citi’s history in the Philippines dates back to July 1902, when the International Banking Corporation, forerunner of Citibank, first established a branch in Manila. With over 115 years in the Philippines, Citi is the largest foreign commercial bank in terms of customers, assets, and revenues, providing Corporate Banking, Markets and Securities Services, Transactional Banking, and Consumer Banking among others. Market Overview The Bangko Sentral ng Pilipinas (BSP) is the central bank of the Philippines. Per the BSP website (https://www.bsp.gov.ph/SitePages/Default.aspx) , the country’s exchange rate policy supports a freely floating exchange rate system whereby the BSP leaves the determination of the exchange rate to market forces. Under a market-determined exchange rate framework, the BSP does not set the foreign exchange rate but instead allows the value of the PHP to be determined by the supply of and demand for foreign exchange. Thus, the BSP’s participation in the foreign exchange market is limited to tempering sharp fluctuations in the exchange rate. On such occasions of excessive movements, the BSP enters the market mainly to maintain order and stability. When warranted, the BSP also stands ready to provide some liquidity and ensure that legitimate demands for foreign currency are satisfied. When it comes to implementing monetary policy, BSP uses various instruments to achieve the inflation target set by the National Government. The primary monetary policy instrument of the BSP is the overnight RRP rate. The RRP rate is the rate at which the BSP borrows money from commercial banks within the country. The BSP raises or reduces its overnight RRP rate depending on the BSP’s assessment of the outlook for inflation and GDP growth, and in doing so, implements its monetary policy stance. If the BSP perceives the inflation forecast to exceed the target, then it can implement contractionary monetary policy by raising its policy interest rate. On the other hand, if the BSP sees the inflation forecast to be lower than the target or there is need to increase liquidity in the financial