The Philippine central bank warned commercial banks on Monday not to use foreign‑exchange derivatives as a shortcut to profit from the peso’s recent slide. The warning follows a sharp depreciation that pushed the currency to a record low against the dollar, heightening concerns that speculative trades could amplify market stress. Regulators fear that leveraged positions may trigger flash crashes and undermine confidence in the banking sector.

Banks typically turn to derivatives to hedge currency exposure, but the central bank’s circular stresses that using them for pure profit‑making breaches prudential standards. Officials said unchecked speculation could distort the foreign‑exchange market, raise funding costs for corporates, and pressure the central bank’s ability to stabilize the peso through monetary policy. The warning also reminds banks that violations could attract supervisory penalties.

The directive signals tighter oversight of derivative activity as the peso remains vulnerable to external shocks. Market participants are likely to reassess risk models and limit speculative positions, which should curb abrupt swings. Foreign‑exchange derivatives usage will now be monitored closely, curbing excesses that could destabilize the currency. Banks are expected to report their derivative exposure quarterly to satisfy the new oversight regime.