THE Philippines’ gross international reserves (GIR) declined in February on the back of central bank’s foreign exchange operations and the national government’s foreign debt servicing, official data showed on Tuesday.
The GIR stood at $81.132 billion in February, a 0.29 percent contraction from the $81.376 billion in January. It also decreased by 0.90 percent from $81.877 billion in February 2016, the Bangko Sentral ng Pilipinas (BSP) said.
The GIR is the sum of a country’s transactions with the rest of the world, which consist of the reserve position with the International Monetary Fund, foreign exchange holdings, gold reserves, special drawing rights (SDRs) and foreign investments.
An analyst warned of further moderation in foreign reserves as the central bank is expected to protect the peso from losing depreciating fast against the US dollar amid expectations of hawkish policy in US in the form of higher interest rates.
Land Bank of the Philippines market economist Guian Angelo Dumalagan noted the GIR could moderate still near-term as a result of BSP intervention in the foreign exchange market to defend the peso-dollar rate against abrupt fluctuations.
“The peso might weaken further this year due to the faster pace of US monetary tightening,” he said.
The Federal Reserve is expected to hike interest rates three more times this year, prompting further capital flight from emerging markets, including the Philippines, as funds shift to dollar-denominated assets. Reports also said the probability of a March Fed hike is quite high.
The peso is now trading above the psychologically important P50:$1level which it hit for the first time this year on February 18.
The peso first traded at P50:$1 on November 24, 2016, a more than 10-year low, as bets of an interest rate hikes in the US–which actually happened in December–favored the dollar. It depreciated by 5.35 percent against the dollar last year.
Dumalagan expects remittances from overseas Filipino workers to remain steady, and continue to help build the country’s foreign reserves.
Latest data showed personal remittances rose by 4.9 percent year-on-year to $29.7 billion in 2016, exceeding the projected growth rate of 4 percent.
The foreign reserves in February were enough to cover 9.2 months worth of imports, steady from January’s cover, but below the 9.9 months a year-earlier, the central bank noted.
It said “outflows arising from BSP’s foreign exchange operations and the payments made by the national government for maturing foreign exchange obligations” contributed largely to the GIR contraction.
The outflows were partially offset by the net foreign currency deposits of the national government, and revaluation adjustments on the BSP’s gold holdings as a result of higher gold prices in the international market.
In January, the Philippines completed its 25-year global bond issue and raised $2 billion at a yield rate of 3.7 percent, the same coupon rate set a year earlier.
Measured against the country’s foreign debt, the GIR in February is equivalent to 5.9 times the country’s short-term external obligations due within one year and 4.3 times based on residual maturity, the BSP said.
Net international reserves–the difference between the BSP’s GIR and total short-term liabilities–decreased to $81.13 billion from $81.37 billion.