Forex buffer down to $104 billion in March

MANILA, Philippines — The country’s gross international reserves (GIR) declined for the third straight month in March, dropping to a four-month low of $104.82 billion from  $105.16 billion in February, the Bangko Sentral ng Pilipinas (BSP) said yesterday.

The central bank said the month-on-month decrease in the foreign exchange buffer reflected outflows mainly from the net withdrawal in the national government’s foreign currency deposits with the BSP for debt servicing as well as the downward adjustment in the value of the BSP’s gold holdings due to the decrease in the price of gold in the international market.

The BSP’s gold holdings slipped to $9.11 billion in March from February’s $9.17 billion as the central bank continued to actively participate in gold trading instead of being passive amid the volatility in the price of gold.

The outflows were partly offset by the BSP’s income from investments abroad. This was the lowest GIR level since the $104.81 billion recorded in November last year.

The GIR is the sum of all foreign exchange flowing into the country and serves as a buffer to ensure it will not run out of foreign exchange it could use in case of external shocks.

“The latest GIR level represents a more than adequate external liquidity buffer, which can help cushion the domestic economy against external shocks,” the BSP said.

The foreign exchange buffer is equivalent to around 12 months’ worth of imports of goods and payments of services and primary income. It is also about 7.5 times the country’s short-term external debt based on original maturity and 5.3 times based on residual maturity.

The BSP managed to build up the country’s GIR to a record $110.12 billion in December last year as the pandemic battered the global economy. Mobility restrictions through lockdowns resulted in a major slump in global trade.

BSP Governor Benjamin Diokno earlier told representatives of Moody’s Investors Services the country’s foreign exchange buffer remains adequate to cushion the economy against the impact of the global health crisis.

“On the external front, we continue to have adequate buffers against shocks,” Diokno said.

The BSP sees a record high GIR of $114 billion this year and another all-time high of $117 billion next year.

Rizal Commercial Banking Corp. chief economist Michael Ricafort said the imposition of the tighter quarantine standards in the National Capital Region and adjacent provinces (NCR Plus) could lead to slower recovery in imports and demand for dollars to pay for imports, resulting in a relatively narrower trade deficit.

Ricafort said the continued inflows of the country’s structural sources of dollar revenues such as remittances from overseas Filipino workers, business process outsourcing (BPO) as well as revenue from Philippine offshore gaming operators (POGO) and foreign direct investments would serve as a catalyst to the GIR.