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Forex reserves rise to $107.2 billion
BSP Governor Benjamin Diokno said the month-on-month increase reflected inflows that mainly came from the proceeds of the global and samurai bond issuances of the national government, which were deposited in the central bank.
KJ Rosales/ File

Forex reserves rise to $107.2 billion

Lawrence Agcaoili (The Philippine Star) - May 15, 2021 - 12:00am

MANILA, Philippines — The country’s foreign exchange buffer  went up  by 2.6 percent to a three-month high of $107.25 billion as of end-April, from the revised $104.48 billion a month earlier, as the government borrowed more to beef up the country’s COVID-19 war chest, according to the Bangko Sentral ng Pilipinas.

BSP Governor Benjamin Diokno said the month-on-month increase reflected inflows that  mainly came from the proceeds of the global and samurai bond issuances of the national government, which were deposited in the central bank.

The Philippines returned to the Japanese debt market this year, raising $500 million through the issuance of samurai or yen-denominated bonds to help the economy recover from the economic turmoil brought about by the COVID-19 pandemic.

The country last tapped the Japanese debt market in August 2019 when it raised $855.6 million through  the sale  of multi-tenor samurai bonds.

It also raised another 2.1 billion euros via a triple-tranche euro-denominated bond offering also in April.

Diokno said the upward adjustment in the value of the BSP’s gold holdings due to the increase in the price of gold in the international market also contributed to the higher gross international reserves (GIR) level.

Data showed the BSP’s gold holdings rose by 2.2 percent to $9.31 billion in April from $9.11 billion in March as the central bank continued to be active in gold trading  amid the volatility in the price of gold.

Diokno said the strong inflows were partly offset by outflows from the national government’s payments of its foreign currency debt obligations.

The GIR – the sum of all foreign exchange flowing into the country, which serves as buffer to ensure that it will not run out of foreign exchange that it can use in case of external shocks – has been declining after hitting a record $110.12 billion in December last year as the pandemic battered the global economy.

The BSP chief said the foreign exchange buffer is equivalent to around 12.3 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 5.2 times based on residual maturity.

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

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

However, Diokno is confident the country’s forex buffer may reach as high as $120 billion this year on the back of strong  remittances from overseas Filipino workers (OFW)  and inflow from the business process outsourcing sector.

The robust foreign exchange buffer is expected to continue to support the peso, which continues to appreciate against the   dollar over the past few weeks.

Michael Ricafort, chief economist at Rizal Commercial Banking Corp., said the relatively high GIR could fundamentally provide some cushion for the peso exchange rate especially versus any speculative attacks, amid proceeds of foreign borrowings/funding requirements by the government and by the largest companies, relatively narrower trade deficits as slower recovery in imports if the economic recovery remains relatively slower especially in view of the relatively higher new COVID-19 cases.

“GIR is again moving closer to the record high of $110.1 billion posted last December,” Ricafort said.

Ricafort said the near record high GIR would further strengthen the country’s external position that could fundamentally support its  credit ratings from top global credit rating agencies.

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