Forex buffer hits above $100 billion in October

MANILA, Philippines — The proceeds of the retail onshore dollar bond issuance by the national government boosted the Philippines’ foreign exchange buffer to hit a six-month high of $101.09 billion in October from $98.12 billion in September.

Preliminary data released by the Bangko Sentral ng Pilipinas (BSP) Tuesday evening showed the country’s gross international reserves (GIR) level breached the $100 billion mark for the first time after five months.

The latest GIR level was the highest since the $101.76 billion recorded in April.

The GIR is the sum of all foreign exchange flowing into the country and serves as buffer to ensure that it will not run out of foreign exchange that it could use in case of external shocks.

“The month-on-month increase in the GIR level reflected mainly the national government’s net foreign currency deposits with the BSP, which include proceeds from its issuance of Retail Onshore Dollar Bonds 2,” the BSP said.

The government raised $1.26 billion last month through the issuance of retail onshore dollar bonds, higher than the original target of $1 billion.

The dollar-denominated five-and-a-half-year bonds fetched a coupon rate of 5.75 percent.

The BSP also cited the upward valuation adjustments in the value of the central bank’s gold holdings due to the increase in the price of gold in the international market.

Data showed that the value of the BSP’s gold holdings increased by almost 10 percent to $10.57 billion in October from $9.79 billion in September.

Furthermore, the central bank said the BSP’s net foreign exchange operations and net income from its investments abroad helped boost the country’s foreign exchange buffer.

According to the BSP, the latest GIR level represents a more than adequate external liquidity buffer.

The GIR level, it added, is equivalent to 7.5 months’ worth of imports of goods and payments of services and primary income. It is also about 5.9 times the country’s short-term external debt based on original maturity and 3.7 times based on residual maturity.

By convention, GIR is viewed to be adequate if it could finance at least three-months’ worth of the country’s imports of goods and payments of services and primary income.

It is also considered adequate if it provides at least 100 percent cover for the payment of the country’s foreign liabilities, public and private, falling due within the immediate 12-month period.

The BSP uses the GIR to defend the peso from volatile movements. It dipped into the buffer to actively intervene in the foreign exchange market to help the peso strengthen to as high as 53.68 to $1 on Feb. 3 from an all-time low of 59 to $1 in October last year amid the aggressive rate hikes delivered by the US Federal Reserve.

After almost touching the 57 to $1 in August and September, the local currency rebounded strongly back to the 55 to $1 handle after closing at 55.91 to $1 on Nov. 6.

The buffer has steadily declined to $108.79 billion in 2021 and $96.15 billion in 2022 after hitting an all-time high of $110.12 billion in 2020.

After exceeding the $93 billion target last year, the BSP’s Monetary Board now expects the GIR level to settle at $99.5 billion this year and at $102 billion next year.