MANILA, Philippines - The country’s foreign exchange reserves thinned for the second straight month in August amid the weakness of regional currencies including the peso as well as the higher debt payments by the government, the Bangko Sentral ng Pilipinas (BSP) reported yesterday.
According to the BSP, the country’s gross international reserves (GIR) stood at $80.26 billion in August, down compared to $80.33 billion in July and $80.87 billion in August last year.
This is the second straight month of decline for the country’s foreign exchange reserves after hitting $80.64 billion in June.
BSP Governor Amando Tetangco Jr. traced the decline in the GIR to the central bank’s foreign exchange operations as well as payments made by the government for its maturing foreign exchange obligations.
“These foreign exchange outflows were partially offset by the national government’s net foreign currency deposit and the BSP’s income from investments abroad as well as revaluation adjustments on its gold holdings and foreign currency-denominated reserves,” Tetangco said.
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 explained the foreign exchange reserves remain ample as it could cover 10.5 months’ worth of imports of goods and payments of services and income.
He added the end-August GIR level is also equivalent to 6.4 times the country’s short-term external debt based on original maturity and 4.5 times based on residual maturity.
The BSP expects the Philippines to end the year with about $81.6 billion in reserves.
It also sees the country’s balance-of-payments (BOP) position – the summary of all transactions between the Philippines and the rest of the world – to post a surplus of about $2 billion, a reversal of the $2.9 billion deficit booked last year.
Bank of the Philippine Islands (BPI) said in its latest Global Markets economic commentary and outlook entitled China Cloud, Fed Rain: How Big is your umbrella?” that central banks in the region including the Philippines would need to tolerate drawing down on their foreign currency reserves to help their economies weather the US Federal Reserve rate hike.
BPI said South East Asian central banks have been building up international reserves in the wake of the Asian financial crisis as bouts of financial market volatility humbled their once promising tiger economies.
BPI said the country’s foreign exchange reserves peaked at $83.6 billion in October 2013 but has declined by 3.9 percent to $80.3 billion.
Myanmar recorded the biggest plunge of 31.6 percent to $96.7 billion from a peak of $141.1 billion in May 2013 followed by Thailand, down 26.7 percent to $156.9 billion from a peak of $183.6 billion in September 2012, and Indonesia, down 17.1 percent to $107.6 billion from a peak of $124.6 billion in August 2011.
“With the flow of funds already reversed course, central bankers will soon find out if they had built up ample reserves to fend off the upheaval in respective markets and if their umbrellas are big enough to weather the impending storm,” BPI said.