Forex buffer thins to 2-year low

MANILA, Philippines — The country’s foreign exchange buffer thinned further in October, hitting its lowest level in almost two years amid the continued weakening of the peso, the Bangko Sentral ng Pilipinas (BSP) reported yesterday.

BSP Governor Nestor Espenilla Jr. said the country’s gross international reserves (GIR) reached $80.62 billion last month from $80.96 billion in September.

This was the lowest forex buffer since registering at $80.17 billion in November 2014.

The GIR is the sum of all foreign exchange flowing into the country. The reserves are a buffer to ensure that the Philippines does not run out of foreign exchange to pay for imported goods and services, or maturing obligations in case of external shocks.

If it deems necessary, the BSP buys or sells dollars from the foreign exchange market to prevent sharp fluctuations of the peso.

“The month-on-month decline in the GIR level was due largely to outflows arising from the foreign exchange operations of the BSP and payments made by the national government for its maturing foreign exchange obligations,” he said.

Espenilla added income from the central bank’s investments abroad as well as the national government’s net foreign currency deposits cushioned the decline.

Data showed income from the BSP’s foreign exchange operations slipped 5.7 percent to $5.54 billion in October from $5.88 billion in September.

The peso has emerged as the worst performing currency in Asia, depreciating more than two percent against the US dollar due to rising geopolitical tension between the US and North Korea, the normalization path taken by the US Federal Reserve, the country’s expected current account (CA) deficit arising from strong imports, among others.

The BSP has allowed the moderate and gradual depreciation of the peso against the dollar as part of its mandate to smoothen the volatility in the foreign exchange market.

The peso continues to trade above the 51 to $1 level.