Philippine dollar reserves rose to a two-month high in late October, ending eight straight months of decline thanks to higher national government (NG) foreign currency deposits with the central bank.
International gross reserves (GIR) reached US$94.1 billion at the end of October, up 1.9% from US$93 billion at the end of September, based on preliminary data from Bangkok Sentral ng Pilipinas (BSP).
This was 12.8% down from dollar reserves of $107.89 billion as of the end of October 2021.
“The monthly increase in the GIR level mainly reflected NG’s net foreign currency deposits with the BSP, which includes proceeds from the issuance of ROP (Republic of the Philippines) Global Bonds and upward valuation adjustments in foreign currency reserves (or non-gold reserves),” the said Central Bank in a statement.
Adequate foreign exchange buffers protect the country from market volatility and ensure that it is able to pay its debts in the event of an economic downturn.
The level of dollar reserves at the end of October is sufficient to service about 6.7 times the country’s original-maturity short-term external debt and four times its remaining maturity.
It also equals 7.5 months worth of imports of goods and payments of services and primary income.
“The inflow of dollars from the issuance of ROP bonds increased reserves from previous monthly declines,” Domini S. Velasquez, chief economist at China Banking Corp., said in a Viber message.
The Marcos administration raised US$2 billion (118 billion pesetas) from its first dollar bond issue in October.
BTr sold $500 million in five-year notes, $750 million in 10.5-year notes and $750 million in 25-year sustainability notes.
“I think some components of the GIR benefit from improved inflows, most notably ROP issuance, and a better reserve position,” said Robert Dan J. Roces, chief economist at Security Bank Corp.
According to BSP, international net reserves increased by 1.1% to $94 billion at the end of October 2022 from $93 billion at the end of September.
International net reserves refer to the difference between foreign exchange reserves (GIR) and reserve liabilities of GNP, including short-term external debt and International Monetary Fund (IMF) credits and loans.
GNP foreign exchange reserves also include foreign investment, foreign exchange, reserve positions with the IMF and Special Drawing Rights (SDRs).
GNP foreign investment was US$80.01 billion at the end of October, up 1.7% from US$78.71 billion in the previous month but down 12.2% from US$91.20 billion dollars in 2021.
Meanwhile, the level of foreign exchange reserves fell 11.6% to $1.45 billion at the end of October from $1.64 billion in September and 48% down from last year’s $2.81 billion.
Reserves at the IMF rose 3.2% to $739.1 million in October, from $716 million in the previous month but down 6.1% from $787.3 million a year ago.
SDRs — or the amount the Philippines can withdraw from the IMF’s reserve currency basket — fell to $3.604 billion by the end of October, down 9.2% from October 2021’s $3.97 billion.
The Philippines received $2.8 billion worth of SDRs from the IMF last August as part of its effort to help countries recover from the coronavirus pandemic.
The value of BSP’s gold holdings fell 0.75% mom to $8.271 billion in October. It was also 9.4% lower than the $9.13 billion a year ago.
“We think reserves are likely to stabilize soon if the country’s trade deficit narrows and remittances remain healthy. Lower global commodity prices translated into lower import growth in September and we expect this trend to continue,” Ms. Velasquez said.
The trade deficit narrowed to $4.821 billion in September from a record $6.021 billion in August.
“GIR would likely hover near current levels as external factors still pose a challenge. However, current levels and import coverage also suggest that monetary authorities have some ammunition to stave off currency volatility,” Mr Roces said.
The central bank has been active in the FX market, helping the peso recover to $1 from a record low of 59p in October. The peso depreciation was attributed to aggressive monetary tightening by the US Federal Reserve and strong demand for dollars.
On Monday, the local unit weakened 12.9%, or 7.58 pesetas, from its close of 51 pesos per dollar on December 31, 2021.
“A planned aggressive tightening of GNP, in line with the Fed point for point, will likely help support 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 hike this month as it seeks to tame inflation and slow peso depreciation. Since May it has hiked 225 basis points so far, bringing the policy rate to 4.25%.
BSP expects GIR to be $99 billion this year and $100 billion next year. — Keisha B. Ta-asan