Forex reserves dip to 3-year low

MANILA, Philippines — The country’s foreign currency buffer declined for the third straight month, hitting a three-year low of $80.13 billion in March amid the volatility in the foreign exchange market, the Bangko Sentral ng Pilipinas (BSP) reported yesterday.

Data from the central bank showed last month’s gross international reserves (GIR) level was $304.1 million lower than the revised February figure of $80.43 billion. The March figure was also the lowest since it declined to $79.54 billion in December 2014.

BSP officer-in-charge Cyd Tuaño-Amador said the GIR level in March was slightly lower than the February level due mainly to outflows arising from the foreign exchange operations of the BSP, as well as the payments made by the national government for its maturing foreign exchange obligations.

The GIR is the sum of all foreign exchange flowing into the country. The reserves serve as buffer to ensure that the Philippines 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 or sells dollars from the foreign exchange market to prevent the sharp depreciation or appreciation of the peso.

The BSP has allowed the moderate and gradual depreciation of the peso against the dollar as part of its mandate to smoothen the volatility in the foreign exchange market and to support the expanding economy.

Preliminary data released by the BSP showed the foreign exchange operations of the central bank yielded $5.48 billion in March, 12.7 percent lower than the $6.28 billion recorded in February.

Funds continued to flow out from emerging markets including the Philippines in search for higher yield as the US Federal Reserve continued to raise interest rates as it takes the normalization path.

This, together with the widening trade and current account (CA) deficits arising from strong imports, particularly of capital equipment and raw materials to support the expanding economy, has resulted in a weaker peso.

Tuaño-Amador said the decline in the foreign exchange reserves in March was partially tempered by the national government’s net foreign currency deposits including the proceeds of its maiden renminbi-dollar denominated bond issuance as well as the revaluation of the central bank’s gold holdings.

The Philippines raised P12 B from its maiden renminbi-dollar denominated bond issuance last month to finance the government’s financing requirements.

Likewise, the value of the BSP’s gold holdings went up slightly to $8.37 billion in March from $8.31 billion in February due to the increase in the price of gold in the international market.

Despite the decline, Tuaño-Amador said the GIR level in March is enough to cover 7.8 months’ worth of import of goods and payments of services and primary income.

“The end-March 2018 level of GIR serves as an ample external liquidity buffer,” she said.

Likewise, the buffer is also equivalent to 5.6 times the country’s short-term external debt based on original maturity and 4.1 times based on residual maturity.