Forex reserves steady at $85.4 B

MANILA, Philippines — The country continued to build up its foreign exchange buffer with the sustained strengthening of the peso against the dollar, the Bangko Sentral ng Pilipinas (BSP) said yesterday.

BSP Governor Benjamin Diokno said the country’s gross international reserves (GIR) stood at $85.38 billion in end-June, slightly higher than the end-May level of $85.36 billion.

This was the highest level for the country’s gross international reserves (GIR) since hitting $85.11 billion in October 2016. 

The GIR is the sum of all foreign exchange flowing into the country. It serves as buffer to ensure that the country 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.

Diokno said the month-on-month increase was due mainly to inflows arising from the revaluation gains from the gold holdings of the central bank, the national government’s net foreign currency deposits as well as the BSP’s foreign exchange operations and income from its investments abroad.

The BSP’s gold holdings amounted to $8.85 billion in end-June, higher than the $8.33 billion recorded in May due to the increase in the price of gold in the international market.

However, the BSP chief said the increase in reserves was tempered partially by payments made by the national government for servicing its foreign exchange obligations.

The central bank has been building up the country’s foreign exchange buffer since November last year. It uses the buffer to buy or sell dollars if it deems necessary to prevent sharp depreciation or appreciation of the peso.

Last year, the BSP allowed the moderate and gradual depreciation of the peso against the dollar to 52.58 from 49.94 to $1 in 2017 as part of its mandate to smoothen the volatility in the foreign exchange market and to support the expanding economy.

The peso has strengthened against the greenback and is now flirting with the 50 to $1 level.

Diokno said the GIR is equivalent to 7.4 months’ worth of imports of goods and payments of services and primary income.

He said the buffer is also equivalent to 5.1 times the country’s short-term external debt based on original maturity and 3.7 times based on residual maturity.

The BSP had raised the projected foreign exchange buffer to $83 billion instead of $77 billion this year as it expects strong inflows of foreign portfolio investments as well as foreign direct investments.

Dennis Lapid, director of the central bank’s Department of Economic Research, had said the key consideration in the revised projection is the sustained favorable domestic growth prospects.

He said the revised GIR projection is enough to cover 6.9 months’ worth of imports compared to the previous projection of only 6.3 months.