Forex reserves rise to $78.5 billion, fall short of target

MANILA, Philippines — The country’s foreign exchange buffer continued to recover with gross international reserves (GIR) rising by 3.7 percent to $78.46 billion as of the end-December 2018 from $75.68 billion as of end-November 2018, the Bangko Sentral ng Pilipinas (BSP) reported yesterday.

The amount, however, is lower than the $80 billion year-end forecast of the BSP.

BSP Officer-in-Charge Diwa Guinigundo attributed the increase mainly to inflows arising from the BSP’s foreign exchange operations, net foreign currency deposits by the national government, and revaluation gains from BSP’s  gold holdings resulting from the increase in the price of gold in the international market.

However, the BSP official said this was partially tempered by payments made by the national government for servicing its foreign exchange obligations.

The GIR is the sum of all foreign exchange flowing into the country. It serves as buffer to ensure that the Philippines will not run out of foreign exchange that it can use to pay for imported goods and services, or maturing obligations in case of external shocks.

“The end-December 2018 level of GIR continues to serve as an ample external liquidity buffer and is equivalent to 6.9 months’ worth of imports of goods and payments of services and primary income,” Guinigundo said.

It is also equivalent to 5.8 times the country’s short-term external debt, based on original maturity and four times based on residual maturity.

Meanwhile, net international reserves, which refer to the difference between the BSP’s GIR and total short-term liabilities, likewise increased by $2.78 billion as of end-2018 to $78.44 billion from the previous month’s level of $75.66 billion.

The BSP uses the buffer to buy or sell dollars if it deems necessary to prevent sharp depreciation or appreciation of the peso. It 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 recovered and strengthened back to the 52 to $1 level after emerging as the third weakest currency after the Indian rupee and Indonesian rupiah when it pierced the 54 to $1 a few months ago.

The Philippines slowly managed to beef up its reserves after the GIR level in October 2018 thinned to a seven-year low of $75.16 billion.

Guinigundo earlier said the central bank would slowly build up the foreign exchange buffer with the expected further strengthening of the peso against the dollar toward the end of the year.