GIR dips but still at ‘comfortable’ level

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The Philippines’ gross international reserves (GIR) dipped in April as a result of government debt payments and losses from the central bank’s foreign exchange operations, but the reserves remain at a comfortable level in terms of import cover.

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The Bangko Sentral ng Pilipinas (BSP) said on Wednesday that GIR in April fell by $37 million to $79.608 billion from the revised $79.645 billion in March. The April level was down by $3.6 billion from the year-earlier figure of $83.213 billion.

The central bank forecasts GIR to reach $88 billion at the end 2014.

The BSP said the decline in dollar reserves was due mainly to outflows in the form of payments by the government of maturing foreign exchange obligations and the BSP’s foreign exchange operations.

The outflows were partially offset by foreign currency deposits of the Treasurer of the Philippines of loan proceeds from multilateral sources, the BSP said.

“The GIR remains ample as it can cover 11 months’ worth of imports of goods and payments of services and income. The GIR level is also equivalent to 6.9 times the country’s short-term external debt based on original maturity and 5.1 times based on residual maturity,” BSP Officer in Charge Nestor Espenilla Jr. said.

Nicholas Antonio Mapa, associate economist at the Bank of the Philippine Islands, said the GIR level in April is still the “most comfortable” in terms of import cover in the Asian region, second only to Taiwan.

“As such, the slight dip in reserves is not worrisome as the BSP continues to have ample dollar liquidity at its disposal to smooth out any sharp fluctuations in the exchange rate,” he said.

Furthermore, Mapa said the Philippines is expected to continue to post current account surpluses in the coming months, which would help in building up the GIR or offsetting further drawdowns of the country’s reserves.

The current account is one of the components of a country’s balance of payments, which summarizes a country’s economic transactions with the rest of the world during a period.

“BSP has done its legwork in building up its foreign reserves in the recent past, which will be invaluable in the eventual United States Federal Reserve tightening cycle,” Mapa added, referring to the expected hike in the Fed’s interest rates at the end of the year.

GIR refes to foreign assets that are readily available to and controlled by the central bank for direct financing of payments imbalances and for managing the magnitude of such imbalances. It consists of holdings of gold, special drawing rights, foreign investments, and foreign exchange. Higher reserves help prop up the peso and allows monetary authorities to keep domestic inflation at bay.

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