Higher gold hoard, government deposits GIR hits record $85.5 B in July

MANILA, Philippines - The steady increase in the central bank’s gold holdings, as well as deposits by the national government, helped the country’s foreign exchange buffer hit a record level of $85.49 billion in July, the Bangko Sentral ng Pilipinas (BSP) reported yesterday.

BSP Governor Amando Tetangco Jr. said the country’s gross international reserves (GIR) last month exceeded the previous all-time high of $85.28 billion recorded last June by $207 million.

Tetangco attributed the increase to the central bank’s foreign exchange operations as well as the revaluation of its gold holdings due to the increase in the price of gold in the international market.

The BSP’s gold holdings inched up two percent to $8.5 billion in July from $8.34 billion in June, while gains from foreign exchange operations climbed to $2.03 billion from $2.02 billion.

He also cited the steady rise of the BSP’s income from investments abroad as well as the net foreign currency deposits by the national government.

Data showed foreign investments of the central bank amounted to $73.32 billion in July from $73.29 billion in June.

The BSP said the increase was partially offset by payments made by the national government for its maturing foreign exchange obligations.

The GIR is the sum of all foreign exchange flowing into the country. The reserves serve as buffer to ensure the Philippines would not run out of foreign exchange which it uses to pay for imported goods and services, or maturing obligations in case of external shocks.

If it deems necessary, the BSP buys dollars from the foreign exchange market to prevent sharp depreciation of the peso. It can also sell to avoid a sharp appreciation of the local currency.

Tetangco said the end June GIR level could cover 10.5 months’ worth of imports of goods and payments of services and income.

The foreign exchange buffer is also equivalent to six times the country’s short-term external debt based on original maturity and 4.3 times based on residual maturity.

The country’s foreign exchange reserves reached $80.67 billion last year from $79.54 billion in 2014. The figure was slightly lower than the revised GIR level target of $80.7 billion for 2015.

For this year, the BSP sees the GIR hitting $82.7 billion, equivalent to nine months import cover.

The global financial markets have been volatile as a result of the normalization of interest rates in the US, the economic slowdown in China as well as the decision of the United Kingdom to exit from the European Union (Brexit).

The Philippines is seen surviving external shocks brought about by uncertainties on the back of its strong macroeconomic fundamentals.