Forex reserves surpass 2017 target

MANILA, Philippines — The country’s foreign exchange buffer recovered strongly last month, hitting a four-month high of $81.47 billion and exceeding its full-year target for 2017, the Bangko Sentral ng Pilipinas (BSP) said.

BSP Governor Nestor Espenilla Jr. said gross international reserves (GIR) rose to $81.47 billion in December after thinning to a two-year low of $80.3 billion in November.

This was the highest level of the country’s foreign exchange buffer since August when it reached $81.72 billion. The amount also exceeded the revised full-year GIR target of $80.7 billion.

Espenilla traced the increase to inflows arising from the BSP’s foreign exchange operations, net foreign currency deposits by the national government, and the income from the central bank’s investments abroad.

Data showed the BSP’s foreign investments inched up by 0.89 percent to $65.76 billion in December from $65.18 billion in November, while its foreign exchange operations yielded a 5.4 percent increase to $5.74 billion from $5.44 billion.

The BSP also cited 1.1 percent increase in its gold holdings to $8.34 billion from $8.04 billion due to revaluation adjustments resulting from the increase in the price of gold in the international market.

Espenilla said the improvement of the GIR level was partially offset by payments made by the national government and the BSP for maturing foreign exchange obligations.

According to him, the end-December GIR level remained adequate as it can cover 8.3 months’ worth of imports of goods and payments of services and primary income.

He added the buffer 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.

The GIR is the sum of all foreign exchange flowing into the country. The reserves serve 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.

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

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

After emerging as the worst performing currency as it depreciated by a little over four percent to hit a fresh 11-year low of 51.77 to $1 in Oct. 25, the peso rallied strongly and ended the year at a six-month high of 49.93 to $1 or about 0.4 percent weaker than the 2016 close of 49.72 to $1.

Espenilla earlier said the peso depreciated last year even as foreign direct investments flowed in, a reversal of foreign portfolio investment flows as well as loan prepayments was felt in the financial account.

The BSP’s first line of defense has been to maintain a flexible exchange rate while providing foreign currency liquidity from its ample supply of foreign exchange reserves to manage sharp movements.

For 2018, the BSP sees the GIR level thinning to $80 billion equivalent to 7.5 month’s worth of imports of goods and payments of services and primary income.