FOREIGN exchange operations and the national government’s foreign debt service trimmed country’s gross international reserves (GIR) in March, central bank data showed on Friday.
The GIR stood at $80.873 billion as of end-March, a 0.69 percent contraction from $81.436 billion in February. It also contracted by 2.53 percent from $82.977 billion in March 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.
Noting that the central bank is protecting the peso by foreign exchange market intervention, an analyst warned of further moderation in foreign reserves.
Land Bank of the Philippines market economist Guian Angelo Dumalagan said the latest GIR data is consistent with the peso’s depreciation in March, “which likely prompted the BSP to intervene in the foreign exchange market in order to control the local currency’s decline against the dollar.”
“Moving forward, expectations of a further depreciation of the peso would continue to weigh down on the country’s reserves,” he added.
BSP data showed that the peso-dollar rate was P50.27:$1 on average last month, from P49.96:$1 in February and P46.72:$1 a year earlier.
The peso is now trading above the psychologically important P50:$1 level which it hit for on February 18 this year.
The peso first traded at P50:$1 on November 24, 2016, a more than 10-year low, as bets of interest rate hikes in the US—which actually happened in December—favored the dollar. The local currency depreciated by 5.35 percent against the dollar last year.
An economist from a private financial institution said the GIR will continue to be the buffer against the negative impact of Fed normalization this year and next.
There are a lot of external risks that the Philippines and other major economies of the Association of Southeast Asian Nations may face, but the big one would be the United States Federal Reserve interest rate hikes, Euben Paracuelles, senior economist at Nomura Asset Management, said.
“Our assumption is two rate hikes from the Fed this year, and followed by a few more next year. So that is negative for these countries overall, because this could lead to the strengthening of the US dollar. Capital outflows will be sent back to US and exacerbate the weakness of the currencies in the Asean,” he said on the sidelines of the 3rd Asean Finance Ministers’ and Central Bank Governors’ Joint Meeting in Cebu.
Paracuelles said the key is the ability to counter the risk and one metric in foreign exchange reserves buffer or import cover.
The foreign reserves in March were enough to cover 8.9 months worth of imports, down from 9 months in February and from 10 months a year-earlier, the central bank noted.
The BSP said outflows as a result of its foreign exchange operations and the payments made by the national government for maturing foreign exchange obligations put a drag on the GIR.
The outflows were partially offset by the net foreign currency deposits of the national government, and revaluation adjustments in the BSP’s gold holdings as a result of higher gold prices in the international market.
Against the country’s foreign debt, the GIR is equivalent to 5.2 times the short-term external obligations due within one year and 3.9 times based on residual maturity, the BSP said.
Net international reserves—the difference between the GIR and total short-term liabilities—decreased to $80.86 billion from $81.43 billion.