BSP raises GIR target to $83 B this year

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) raised the projected foreign exchange buffer to $83 billion instead of $77 billion this year as it expects strong inflows of foreign portfolio investments as well as foreign direct investments.

Dennis Lapid, director of the central bank’s Department of Economic Research, said the key consideration in the revised projection is the sustained favorable domestic growth prospects.

He added the revised GIR projection is enough to cover 6.9 months’ worth of imports compared to the previous projection of only 6.3 months.

Economic managers see the country’s gross domestic product (GDP) expanding between six and seven percent this year despite easing to a four-year low of 5.6 percent in the first quarter from 6.3 percent in the fourth quarter of last year.

 “Despite the moderation in the first quarter, we continue to see favorable domestic growth prospects for the economy. The moderation in the first quarter was due largely to the impasse in the budget which has been resolved,” he said.

Lapid also cited the expected modest rebound in non-resident capital flows to emerging markets including the Philippines.

The BSP, he added, sees stronger net inflows of foreign portfolio investments or hot money amounting to $4 billion instead of a net outflow of $200 million this year.

This is enough to offset the downward revision of net FDI inflows to P9 billion instead of $10.2 billion this year.

 “The key reason for the lower FDI projection is to take into account the increased uncertainty in the external environment which is also pushing down on investment activities,” Lapid said.

He added investors also adopted a wait-and-see attitude in the first up in the run up of 2019 mid-term elections.

Lapid explained another major factor is the shift to dovish monetary policy stance by the US Federal Reserve that could translate to stronger inflows to emerging markets.

The BSP has been building up its foreign exchange buffer with the GIR level rising for seven straight months to a 31-month high of $85.02 billion in May from $83.88 billion in April.

This was the highest GIR level since hitting $85.11 billion in October 2016. 

The GIR is the sum of all foreign exchange flowing into the country. It serves as buffer to ensure that 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.

The central bank has been building up the country’s foreign exchange buffer since November last year. It uses the buffer to buy or sell dollars if it deems necessary to prevent sharp depreciation or appreciation of the peso.

As a result, the BSP now expects the Philippines to book a balance of payments (BOP) surplus of $3.7 billion instead of a deficit of $3.5 billion his year.

Likewise, the central bank sees a record current account deficit of $10.1 billion instead of $8.4 billion this year as the strong growth of imports would continue to outpace that of exports.

BSP Deputy Governor Diwa Guinigundo said uncertainties in the global environment include the trade tension between the US and China.

Guinigundo also cited the run up to the mid-term elections in the first half of the year.