IMF urges continued buildup of forex reserves

THE INTERNATIONAL Monetary Fund has urged the Bangko Sentral ng Pilipinas to further beef up its gross international reserves, now at a record high of $23.76 billion, while maintaining a flexible exchange rate policy.

In its 2006 country report, the IMF executive board said the BSP's current policy to deal with the upward pressure on the exchange rate was "broadly appropriate" but cited the merits of further building up the GIR while the foreign inflows were strong.

"Going forward, we urge continued exchange rate flexibility, even though further reserve accumulation might be justified given that the exchange rate does not appear to be mis-aligned," the IMF board said.

The peso is now trading at a six-year high against the US dollar. On Friday, the local currency peaked at 48.265 before closing at 48.305 to $1.

Currency Traders Pay Biggest Premium in 3 Years for Yen Calls

Currency traders are paying the most in almost three years for options that protect against a potential rebound in the yen versus the euro, before Group of Seven finance officials meet in Germany later this week.

Investors are hedging against the chance G-7 nations try to support the yen after it fell last month to a record low against the euro. German Finance Minister Peer Steinbrueck last week said the G-7 will discuss the drop in Japan's currency, which has weakened as the Bank of Japan kept its benchmark interest rate at 0.25 percent, the lowest among major economies.

Traders are buying insurance against an unraveling of the so-called carry trade, in which investors borrow in Japan and buy debt in economies such as the euro region, where they can get 2 percentage points or more in extra yield.