Forex reserves dip to $105.7 billion in July

MANILA, Philippines — The country’s foreign exchange reserves went down slightly to $105.7 billion in July from $106 billion in June, driven by lower global gold prices and the government’s settlement of maturing foreign debt, according to the Bangko Sentral ng Pilipinas (BSP).

The slight dip in gross international reserves (GIR) was due mainly to the decrease in the value of the central bank’s gold holdings, which are marked-to-market, and the national government’s drawdowns on its foreign currency deposits with the BSP to settle external obligations.

“The decline in GIR may be caused by larger debt repayments to address maturing securities and other obligations,” Reinielle Matt Erece, an economist from Oikonomia Advisory and Research Inc., said.

Based on BSP data, the value of the central bank’s gold holdings eased to $13.78 billion in July from $13.8 billion in June, while its net foreign exchange operations yielded a 34.3-percent decrease to $826.3 million from $1.25 billion.

Despite the marginal drop, the BSP said the GIR level is still sufficient to cover 7.2 months’ worth of imports and payments of services and primary income. It is also 3.4 times the country’s short-term external debt based on residual maturity.

GIR is composed of foreign exchange, foreign investments, gold reserves and reserve positions in the International Monetary Fund. It helps shield the economy from external volatility, supports the peso and ensures the country can meet its foreign debt and import requirements.

By convention, GIR is viewed to be adequate if it can finance at least three months’ worth of the country’s imports of goods and payments of services and primary income.

It is also considered adequate if it provides at least 100 percent cover for the payment of the country’s foreign liabilities, public and private, falling due within the immediate 12-month period.

BPI lead economist Jun Neri warned that defending the peso at key resistance levels could come at the cost of lower reserves, especially if the central bank steps in to temper currency volatility.

“If the BSP intervenes to keep (the peso) from breaching 59 and 60 (against the dollar), we should see further depletion of our GIR,” Neri said. “(The BSP is) not too worried about breaches of these levels though since inflation is pretty low.”

The BSP expects the country’s dollar reserves to hit $104 billion this year and $105 billion in 2026.