Forex reserves build up to all-time high $104.5 billion

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) continues to build up the country’s foreign exchange buffer, with the gross international reserves (GIR) hitting an all-time high of $104.51 billion in end-November from $103.8 billion in October.

The BSP said the month-on-month increase in the GIR level reflected inflows mainly from the BSP’s foreign exchange operations and income from its investments abroad.

However, the inflows were partly offset by the foreign currency withdrawals the national government made to settle its foreign currency debt obligations and revaluation losses from the BSP’s gold holdings resulting from the decrease in the price of gold in the international market.

“The latest GIR level represents an adequate external liquidity buffer, which can help cushion the domestic economy against external shocks,” the BSP said.

The GIR is the sum of all foreign exchange flowing into the country and serves as buffer to ensure that it will not run out of foreign exchange that it could use in case of external shocks.

According to the BSP, the buffer is equivalent to 11.2 months’ worth of imports of goods and payments of services and primary income, as well as also about 9.3 times the country’s short-term external debt based on original maturity and 5.3 times based on residual maturity.

The value of the BSP’s gold holdings declined by 7.7 percent to $10.75 billion in November from $11.65 billion in October due to the decline in the price of gold in the world market. The amount, however, was 34.1 percent higher than last year’s $8.01 billion.

The BSP has decided to shift to active gold trading instead of being passive because of the change in the price dynamics of gold. The price of gold surged past the $2,000-an-ounce level to reach new record levels, but has since corrected.

After peaking at 12.8 percent when the BSP’s gold holdings reached $12.59 billion in July, gold now accounts for 10.3 percent of the country’s foreign exchange buffer as the central bank vowed to maintain it at 10 percent.

The BSP has been building up its GIR to serve as buffer against external shocks.

Like most central banks, it holds international reserves to provide a standby supply of foreign exchange for instances when foreign exchange holdings of domestic commercial banks temporarily fall short of the total demand from the private sector and the national government.

The BSP is now expecting a higher GIR of $105 billion  this year and $106 billion   next year on the back of strong inflows due to higher borrowings by the national government to fight the impact of the   pandemic.

Rizal Commercial Banking Corp. chief economist Michael Ricafort said the record GIR level reflects the strong balance of payments (BOP) surplus,  largely due to the continued year-on-year narrowing of the trade deficit, as well as higher foreign borrowings by both the government and the private sector amid near record low borrowing costs.

Ricafort also cited the stronger net foreign portfolio investments inflows as well as continued rise in remittances from overseas Filipino workers (OFWs), exports, and pre-COVID foreign direct investment (FDI) level.

“Going forward, GIR could still post new record highs in view of the sustained gains of the catalysts mentioned above as the economy re-opens and recovers further, as improved by the further developments and deployment/rollout of the various vaccines for COVID-19,” Ricafort said.