Forex buffer down to $80.62 Billion

Lawrence Agcaoili - The Philippine Star
Forex buffer down to $80.62 Billion
Last month's gross international reserves (GIR) level was $605.9 million lower than the January figure of $81.22 billion.

MANILA, Philippines — The country’s foreign exchange buffer declined for the second straight month to $80.62 billion in February amid strong outflows and lower gold prices in the international market, the Bangko Sentral ng Pilipinas (BSP) reported yesterday.

Last month’s gross international reserves (GIR) level was $605.9 million lower than the January figure of $81.22 billion.

BSP Governor Nestor Espenilla Jr. attributed the decline to outflows arising from the foreign exchange operations of the central bank, as well as the payments made by the national government for its maturing foreign exchange obligations.

He also cited the revaluation adjustments on the BSP’s gold holdings due to the decrease in the price of gold in the international market.

Data showed the value of the central bank’s gold holdings slipped 2.3 percent to $8.31 billion in February from $8.5 billion in January.

According to Espenilla, the decline last month was tempered by the national government’s net foreign currency deposits including the proceeds from the new money component of the global bonds issued by the government under its liability management transactions.

Likewise, Espenilla said the income from the BSP’s foreign exchange operations also helped cushion the decline in the country’s GIR level.

Despite the decline, Espenilla said the GIR level in February represents more than ample liquidity buffer as it is enough to cover 8.2 months’ worth of import of goods and payments of services and primary income.

He added the buffer is also equivalent to 5.9 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 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 local currency is the weakest performing currency in the region, shedding four percent since the start of the year.

It breached the 52 to $1 level to hit a fresh 11-year low due to strong demand for dollars to finance strong imports in support of the country’s growing economy.

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 and to support the expanding economy.

For this year, 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.

Last year, the GIR level stood at $81.47 billion, exceeding the revised full-year target of $80.7 billion.

Espenilla earlier said the country’s external position continues to be manageable amid global headwinds due to sustained inflows as well as steady remittances from overseas Filipinos and revenues from the business process outsourcing sector.

“The robustness of the country’s external position is anchored by our large GIR and secondary buffers such as sustained foreign direct investments, remittances and BPO receipts, along with investment grade-rating that guarantees ready market access for any equity and debt financing requirement,” he said.

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