Philippine foreign exchange reserves still adequate – economists

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Economists said that the country’s foreign exchange reserves are still adequate and in a healthy level despite its sharp decline in January.

“For now, we still believe that foreign exchange reserves are healthy, supported by BOP [balance of payments]surpluses,” Standard Chartered Bank economist Jeff Ng said.

The economist is referring to the $4.3-billion decline on the country’s gross international reserves (GIR) in January.

Data from the BSP showed that the GIR in January dropped to $78.9 billion from $83.19 billion in December 2013, because of the large amount of debt service payments for the month.


Ng added that the reserves remain “relatively resilient” as it could still cover 11.3 months of imports, also noting the Philippines’ strong current account surplus (4.3 percent of gross domestic product) for the first three quarters of 2013.

However, the Standard Chartered Bank economist said that the bank will remain watchful of whether the decline in GIR is just a one-off or more to follow.

Furthermore, University of the Philippines economics professor Benjamin Diokno also shared the same view, saying that the current level of foreign exchange reserves are “more than adequate,” and could still support the Philippine peso

“We’re fine. It’s [GIR] equivalent to about one year imports. Plus we can look forward to $20-billion OFW [overseas Filipino workers]remittances yearly,” he said.

Asked if the current peso level is still appropriate for the economy, Diokno replied that at this time, P45 to $1 is “just right.”

“Its good for OFW’s families, exporters, import-substituting firms. BPO [business process outsourcing]owners and workers, and the economy in general,” he said.

GIR are 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. These assets are valued mark-to-market. Higher reserves help prop up the peso and keeps domestic inflation at bay.

Peso to show modest strength
For his part, Joey Cuyegkeng, ING Bank Manila senior economist, said that the peso is likely to show some modest strength despite the large month-on-month drop in foreign exchange reserves for January.

“Data on the country’s external payments position would likely support PHP,” he said, adding that sustained gains in exports and OFW remittances would “ease” concerns over the $4.3-billion month-on-month drop in foreign exchange reserves for January.

Merchandise exports reached its highest level in 2013 as it recorded $53.978 billion in receipts from $52.1 billion in 2012, while personal remittances sent by OFWs into the Philippines recorded its highest year-on-year level of $2.28 billion in November last year.

Cuyegkeng added that the decline in reserves is from the drop in the value of BSP’s foreign investments, as the emerging markets’ turmoil hit prices of investments while net outflows in January required some amount of US dollar liquidity.

“FX reserves remain excessive by as much as $48 billion if we assume that at six-month merchandise import cover is required. The January reserves cover more than 15 months of merchandise imports,” he added.

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