Forex reserves rise for 7th straight month in May

Forex reserves rise for 7th straight month in May

Highest since october 2016  

MANILA, Philippines — The country’s foreign exchange buffer continued to build up, rising for the seventh straight month to $85.02 billion in May, the Bangko Sentral ng Pilipinas (BSP) said yesterday.

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

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

The BSP’s gold holdings also amounted to $8.33 billion in end-May, higher than the $8.12 billion recorded in April, due to the increase in the price of gold at the international market.

Earnings from the central bank’s foreign exchange operations jumped 28.9 percent to $2.84 billion in May from $2.2 billion in April.

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

The GIR is the sum of all foreign exchange flowing into the country. It serves 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.

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 to 52.58 to a dollar from 49.94 to $1 in end 2017 as part of its mandate to smoothen the volatility in the foreign exchange market and to support the expanding economy.

 The peso inched up 1.1 percent to close at 52.02 to $1 yesterday from 52.58 to $1 in end 2018.

Diokno said the current GIR level is equivalent to 7.5 months’ worth of imports of goods and payments of services and primary income.

He added the buffer is also equivalent to 5.1 times the country’s short-term external debt based on original maturity and 3.6 times based on residual maturity.

The BSP expects the GIR level thinning to $77 billion this year, equivalent to 6.3 months worth of imports of goods and payments of services and primary income.

The central bank is set to release the revised GIR projection soon.

Diokno said the country continues to sustain domestic economic resilience by building adequate buffers.

“These are some of the policy actions and reforms that we can pursue or continue to pursue in order to ward off the potential negative effects of external shocks, especially from rising protectionist measures and heightened policy uncertainty,” he said in an earlier speech.

Risks to global economic growth include volatilities in commodity prices, uncertainty over advanced economies’ policy normalization as well as the ongoing US-China trade war.

“Keeping out house in order remains the first and best line of defense,” the BSP chief said adding the trade war between Washington and Beijing has no direct imposition of the Philippines.