Forex reserves hit new record in August

MANILA, Philippines – The country’s foreign exchange reserves continued to strengthen, hitting a new  all-time high of $85.9 billion in end-August, the Bangko Sentral ng Pilipinas (BSP) reported yesterday.

BSP Governor Amando Tetangco Jr. said last month’s gross international reserves (GIR) level was $390 million higher than the previous record of $85.51 billion booked in July.

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 it could use 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 sharp appreciation of the local currency.

Tetangco attributed the increase to the national government’s net foreign currency deposits as well as income from the central banks foreign exchange operations and investments abroad.

Data showed earnings from the BSP’s investments abroad inched up  0.88 percent to $73.94 billion in August from $73.29 billion in July.

On the other hand, the BSP chief said the increase was partially offset by payments made by the national government for its maturing foreign exchange obligations as well as the revaluation of the central bank’s gold stash due to lower price of gold in the world market.

The value of the BSP’s gold holdings, according to BSP data, decreased 2.8 percent to $8.26 billion from $8.5 billion.

Tetangco said the end-August 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 expects the GIR to hit $82.7 billion, equivalent to nine months import cover.

Tetangco said the external liquidity position of the Philippines has remained robust as it booked current account surpluses for the past 13 years, allowing it to beef up its foreign exchange reserves.

The Philippines has survived the volatile global financial markets caused by the timing of another interest rate hike by the US Federal Reserve, the economic slowdown in China, the stimulus package of Japan, and the decision of the United Kingdom to exit from the European Union (Brexit) last June.