Forex reserves plunge to 6-year low

MANILA, Philippines — The country’s foreign exchange buffer slumped for the fourth straight month to a fresh six-year low of $76.89 billion in July on the back of strong outflows, according to the Bangko Sentral ng Pilipinas.

BSP Governor Nestor Espenilla Jr. said last month’s gross international reserves (GIR) level was $633.5 million lower than the $77.52 billion recorded in June.

This was also the lowest since the GIR level amounted to $76.13 billion in June 2012.

The GIR is the sum of all foreign exchange flowing into the country. It serves as a 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.

Espenilla said the month-on-month decline in the foreign exchange reserves was due mainly to outflows arising from the payments made by the national government for maturing foreign exchange obligations, foreign exchange operations of the central bank, and the revaluation adjustments on the central bank’s gold holdings resulting from the decrease in the price of gold in the international market.

Data showed the value of the BSP’s gold holdings declined by 1.6 percent to $7.79 billion in July from $7.91 billion in June.

The BSP uses the forex buffer to buy or sell dollars if it deems necessary to prevent sharp depreciation or appreciation of the peso against the dollar. The central bank 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.

The peso has emerged as one of the weakest currencies this year, depreciating by as much as seven percent to pierce the 53 to $1 level and hit a fresh 12-year low due to external and domestic headwinds.

Espenilla said the strong outflows were partially tempered by the national government’s net foreign currency deposits as well as the BSP’s income from its investments abroad.

The end-July level of GIR remains as an adequate external liquidity buffer and was equivalent to 7.4 months’ worth of imports of goods, and payments of services and primary income.

The buffer is also equivalent to 6.1 times the country’s short-term external debt based on original maturity and 4.1 times based on residual maturity.

The BSP expects the country’s current account (CA) and balance of payments (BOP) to incur deficits this year, indicative of the rising investment and infrastructure spending.

“Nevertheless, the stable flow of dollars from overseas Filipinos, the manageable external debt, and healthy foreign exchange reserves remain sufficient to help shield the economy and financial markets against global market volatilities. The peso also remains flexible and competitive supporting the economy’s ability to adapt to external shocks,” Espenilla said during the Development Budget Coordination Committee briefing to the Senate committee on finance.