BSP lowers forex reserves forecast

GIR seen at $80.7 B this year 

MANILA, Philippines - The Bangko Sentral ng Pilipinas (BSP) has lowered the projected gross international reserves (GIR) this year as the country’s foreign exchange buffer continued to decline.

Zeno Ronald Abenoja, director of the BSP’s Department of Economic Research, said the central bank is now looking at a GIR level of $80.7 billion instead of the $81.6 billion for this year from $79.5 billion in 2014.

The GIR is the sum of all foreign exchange flowing into the country. The reserves serve as buffer to ensure the government would not run out of foreign exchange that it could use to pay for imported goods and services, or maturing obligations in case of external shocks.

If it deems necessary, the BSP buys dollars from the foreign exchange market to prevent sharp depreciation of the peso against the dollar. It can also sell to avoid sharp appreciation of the local currency.

Abenoja said the revised GIR level would be enough to cover 9.7 months’ worth of imports of goods as well as payments of services and income.

The country’s foreign exchange reserves declined to $80.57 billion in November from almost a two-year high of $81.09 billion due to higher foreign debt payments by the national government as well as the lower gold prices in the world market.

The value of the BSP’s gold holdings fell 6.7 percent to $6.7 billion in November from $7.18 billion in October. The central bank’s overseas investments likewise slipped to $71.08 billion from $71.36 billion.

On the other hand, the BSP’s foreign exchange operations yielded $1.17 billion in end November, 25.3 percent higher compared to the end October level of $931.6 million.

For one, the BSP now expects cash remittances from Filipinos abroad growing by four percent instead of the original projection of five percent this year.

Remittances inched up 3.7 percent to $20.64 billion in the first 10 months from $19.91 billion in the same period last year due to the continued weakness of other currencies in major host countries against the dollar.

The central bank has lowered its current account (CA) surplus target to $8.9 billion or three percent of gross domestic product (GDP) instead of 14.2 percent or 4.4 percent of GDP this year due to the country’s widening trade deficit.

Abenoja said monetary authorities now expect the country’s merchandise exports contracting by four percent instead of growing by five percent while imports are expected to be flat instead of inching up by one percent this year.

The country’s CA surplus declined 18.7 percent to $5.6 billion or 2.6 percent in the first nine months from $6.8 billion in the same period last year due to the widening trade-in-goods deficit.

He added the BSP maintained its outlook for the BOP surplus at $2 billion this year from a shortfall of $2.9 billion in 2014.

Abenoja said the latest forecasts took into consideration the latest available data at the same time reflects the recent and prospective global and domestic developments.

The revisions, he explained, took into consideration the downward revision in the global growth outlook for this year as well as the decline in commodity prices particularly oil and metal.