THE Philippines’ dollar reserves rose to a two-month high as of end-October and ended eight straight months of decline, thanks to the National Government’s (NG) higher foreign currency deposits with the central bank.
Gross international reserves (GIR) reached $94.1 billion as of end-October, up 1.9% from the $93 billion as of end-September, based on preliminary data from the Bangko Sentral ng Pilipinas (BSP).
This was 12.8% lower than the dollar reserves of $107.89 billion as of end-October 2021.
“The month-on-month increase in the GIR level reflected mainly the NG’s net foreign currency deposits with the BSP, which include proceeds from its issuance of ROP (Republic of the Philippines) Global Bonds, and upward valuation adjustments in foreign currency-denominated reserves (or non-gold reserves),” the central bank said in a statement.
Ample foreign exchange buffers protect the country from market volatility and ensure that it is capable of paying its debts in the event of an economic downturn.
The level of dollar reserves as of end-October is enough to cover about 6.7 times the country’s short-term external debt based on original maturity and four times based on residual maturity.
It is also equivalent to 7.5 months’ worth of imports of goods and payments of services and primary income.
“Influx of dollars from the ROP bond issuance increased reserves from its previous month-on-month declines,” China Banking Corp. Chief Economist Domini S. Velasquez said in a Viber message.
The Marcos administration raised $2 billion (P118 billion) from its first dollar bond issuance in October.
The BTr sold $500 million worth of five-year bonds, $750 million worth of 10.5-year bonds, and $750 million worth of 25-year sustainability bonds.
“I think some components of the GIR benefiting from improved inflows, chief of which is the ROP issuance, and better reserve position,” Security Bank Corp. Chief Economist Robert Dan J. Roces said.
According to the BSP, net international reserves rose by 1.1% to $94 billion as of end-October 2022 from $93 billion as of end-September.
Net international reserves refer to the difference between the BSP’s reserve assets (GIR) and reserve liabilities, including short-term foreign debt, and credit and loans from the International Monetary Fund (IMF).
The BSP’s reserve assets also include foreign investments, foreign exchange, reserve position in the IMF and special drawing rights (SDR).
The BSP’s foreign investments stood at $80.01 billion as of end-October, 1.7% up from $78.71 billion in the prior month, but 12.2% down from $91.20 billion in 2021.
Meanwhile, the level of foreign exchange reserves declined 11.6% to $1.45 billion as of end-October from $1.64 billion in September, and 48% lower than the $2.81 billion seen last year.
Reserves with the IMF went up by 3.2% to $739.1 million in October, from $716 million in the previous month, but 6.1% lower than the $787.3 million a year ago.
SDRs — or the amount which the Philippines can tap from the IMF’s reserve currency basket — dropped to $3.604 billion as of end-October, 9.2% lower from the $3.97 billion in October 2021.
The Philippines received $2.8 billion worth of SDRs from the IMF in August last year as part of the latter’s efforts to help countries recover from the coronavirus pandemic.
The value of the BSP’s gold holdings dipped 0.75% month on month to $8.271 billion in October. It was also 9.4% lower than the $9.13 billion a year ago.
“We think that reserves will likely stabilize soon as the country’s trade deficit narrows and remittances remain healthy. Lower global commodity prices led to lower growth of imports in September, and we expect this trend to continue moving forward,” Ms. Velasquez said.
The trade deficit narrowed to $4.821 billion in September, from the record $6.021-billion deficit in August.
“GIR would likely hover near current levels with external factors still a challenge. However, current levels and import cover also suggests monetary authorities have some ammunition to fend off currency volatility,” Mr. Roces said.
The central bank has been active in the foreign exchange market, helping the peso rebound from its record low of P59 to $1 in October. The peso depreciation has been attributed to the US Federal Reserve’s aggressive monetary tightening and the strong demand for dollars.
As of Monday, the local unit weakened by 12.9% or P7.58 from its P51-per-dollar finish on Dec. 31, 2021.
“Planned aggressive tightening of the BSP, matching the Fed point on point, will likely help buoy the Philippine peso without eroding our reserves too much,” Ms. Velasquez said.
The Monetary Board is widely expected to deliver its second 75-basis-point (bp) rate increase this month as it seeks to tame inflation and slow the peso depreciation. It has so far raised 225 bps since May, bringing the policy rate to 4.25%.
The BSP is expecting a GIR of $99 billion for this year and $100 billion for next year. — Keisha B. Ta-asan
