BSP seeks investment channels to diversify forex reserves

MANILA, Philippines - The Bangko Sentral ng Pilipinas (BSP) is looking for investment opportunities to diversify its foreign exchange reserves, its top official said.

“We continue to look for opportunities to diversify into other currencies and asset classes,” BSP Governor Amando Tetangco Jr. told reporters last Friday.

The country’s gross international reserves (GIR) dipped to $83.818 billion in February after the government purchased some dollars to settle its maturing obligations. Prior to this, it amounted to a record $85.274 billion.

Tetangco was reacting to a study by the Philippine Institute for Development Studies released last week that said the country’s reserves, which serve as cushion in times of external shocks, are “higher than the optimal level.”

It said keeping such “passive” liquidity may have an opportunity costs for the Philippines in terms of gaining more by investing funds more “actively.”

This was not the first time a red flag was raised with regard to the country’s huge reserves. Last year, the International Monetary Fund (IMF) also warned economies against holding “excessive” GIR for the same reasons.

But for the BSP, which even projects GIR to rise to $86 billion this year, being “conservative” on its investments will be more practical.

“We generally have a conservative benchmark for the investment of international reserves. We want to ensure the security of these reserves,” Tetangco said.

“There is valued judgment there,” he added. Analysts said the idea is to minimize risks that could arise from aggressive investments.

Data showed the bulk of the GIR— $71.297 billion— are invested abroad. Others are in the form of currencies, gold holdings, special drawing rights or lent to the IMF.

The idea is to be able to minimize risks associated with aggressive investments, he said, and also to ensure the availability of funds when needed.

Furthermore, Tetangco reiterated there is no particular gauge that could measure if a country’s buffer funds are enough or more than what is needed.

“There are many ways of measuring the adequateness of the international reserves. These models matched considerations and more variables,” Tetangco explained. “The results from these models differ,” he added.