Foreign reserves at lowest level in 2 yrs
The country’s gross international reserves (GIR) continued to decline in November, contracting by $425 million to $78.98 billion from the revised October level of $79.41 billion, preliminary data released by the Bangko Sentral ng Pilipinas (BSP) showed on Friday.
GIR remained at the lowest level in two years due to outflows as a result of the net foreign exchange operations of the central bank, the cost of maturing foreign obligations of the national government, and revaluation adjustments of the central bank’s gold reserves, the BSP said.
“The outflows were partially offset by the net foreign currency deposits by the Treasurer of the Philippines, and income from the BSP’s investments abroad,” it said in a statement.
Dollar reserves in November were also $4.59 billion lower than the $83.57 billion level recorded a year earlier. The level was the lowest since June 2012, when gross international reserves stood at $76.13 billion.
GIR refers to foreign assets that are readily available to and controlled by the central bank for direct financing of payments imbalances. These consist of holdings of gold, special drawing rights, foreign investments, and foreign currency. Higher reserves provide monetary authorities with some flexibility in managing both the exchange rate of the peso and domestic inflation.
Import cover slightly reduced
According to the central bank, the latest GIR level provides a buffer of 10.7 months’ worth of imports of goods and payments of services and income, easing slightly from the 10.8-month import cover in October.
“It is also equivalent to 8.3 times the country’s short-term external debt based on original maturity and 6 times based on residual maturity,” the BSP said in a statement.
GIR decline due to currency management
Nicholas Antonio Mapa, associate economist at the Bank of the Philippine Islands (BPI), said the decline in GIR may be traced to the central bank’s management of the peso exchange rate.
“The USD/PHP has been kept within a very, very tight range with the BSP capping the 45.000 level for the weeks that the market attempted to breach it,” Mapa said in an email to The Manila Times.
To accomplish that, the central bank had to make use of its vast pool of foreign currency reserves to help limit any speculative trading and smooth out sharp spikes in the exchange rate, the economist said.
“They undoubtedly unloaded substantial volume to help address dollar demand during the height of the peso’s depreciation trend,” he added.
Despite touching a recent low in GIR level, Mapa stressed that the Philippines continues to hold a more than comfortable level of foreign exchange reserves to weather any bouts of dollar strength.
The BPI economist also expects that the flow of overseas Filipino workers remittances will replenish the supply of GIR.