Dec forex reserves lowest in 11 months

Higher outflows, gold revaluation

MANILA, Philippines – The country’s foreign exchange buffer in December narrowed to its thinnest level in 11 months amid strong outflows as well as the revaluation adjustments on the gold holdings of the Bangko Sentral ng Pilipinas (BSP).

BSP Governor Amando Tetangco Jr. said the country’s gross international reserves (GIR) thinned for the third straight month to $81.04 billion in December from the revised $81.45 billion in November.

The level was the lowest since January last year when the GIR amounted to $80.69 billion. The foreign exchange buffer has declined for the third straight month after hitting a record high $86.14 billion in September.

The amount was also slightly lower than the $80.666 billion booked in December 2015. The BSP also missed the revised GIR target of $83.7 billion.

Tetangco said the decline was mainly due to outflows arising from payments made by the national government for its maturing foreign exchange obligations.

He also cited the foreign exchange operations of the BSP as well as the revaluation adjustments on the central bank’s gold holdings due to lower price of gold in the international market.

The value of the central bank’s gold holdings declined 1.9 percent to $7.26 billion in December from $7.4 billion in November, while the value of its foreign investments slipped to $68.6 billion from $68.93 billion.

Earnings from its foreign exchange operations inched up 2.1 percent to $3.6 billion from the revised $3.52 billion.

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.

The peso depreciated around six percent last year, making it the second worst- performing currency in the region next to the Chinese yuan. The local currency flirted with the 50 to $1 level several times.

Despite the decline, Tetangco said the GIR level could cover 9.2 months’ worth of imports of goods and payments of services and income.

He added the GIR is also equivalent to 5.8 times the country’s short-term external debt based on original maturity and 4.2 times based on residual maturity.

For this year, the BSP sees the GIR hitting $84.7 billion, equivalent to 8.8 months import cover.

Global financial markets remained volatile due to the interest rate hike by the US Federal Reserve as well as the uncertainties about the policies of US president-elect Donald Trump.