Forex reserves dip to $80.16 B in Jan

MANILA, Philippines – The country’s foreign exchange reserves declined in January due to strong outflows arising from payments by the national government of its maturing foreign debt, the Bangko Sentral ng Pilipinas (BSP) reported yesterday.

BSP Governor Amando Tetangco Jr. said the country’s gross international reserves (GIR) went down to $80.16 billion in January from $80.67 billion in December.

Tetangco said the $508 million decline was due to the foreign exchange outflows arising from payments by the government of its maturing foreign exchange obligations, as well as the central bank’s foreign exchange operations.

The outflows, Tetangco explained, were partially offset by inflows from the national government’s net foreign currency deposits and income from the central bank’s investments abroad as well as the revaluation of its gold holdings due to higher price in the international market.

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 that 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 said the end-January GIR level remains ample as it can cover 10.2 months’ worth of imports of goods and payments of services and income. It was also equivalent to 5.5 times the country’s short-term external debt based on original maturity and four times based on residual maturity.

The central bank lowered its GIR level forecast for 2015 to $80.7 billion from the original target of $81.6 billion projected last May.

However, the country’s GIR level slightly missed the revised target as it reached $80.67 billion in 2015 from $79.54 billion in 2014.

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

The BSP now expects cash remittances from Filipinos abroad growing by four percent instead of the original projection of five percent for 2015 and 2016.

It also expects the current account surplus of $5.7 billion this year lower than the projected level of $8.9 billion in 2015 due mainly to the expected large increase in the imports of goods, notwithstanding improvements in the services and secondary income accounts.

The country’s strong macroeconomic fundamentals would help the Philippines survive external shocks brought about by uncertainties caused by the interest rate lift off in the US as well as the economic slowdown in China, Tetangco said.

Tetangco earlier said the country’s external current account remained in surplus and improvements in external payments dynamics also served to help shield the economy and the domestic financial markets from financial market volatility.

“In the presence of mounting external shocks, keeping one’s own house in order by sustaining strong macroeconomic fundamental serves as our first line of defense,” he said.