Philippine forex buffer rises to $108 billion in February

MANILA, Philippines — The country’s gross international reserves (GIR) rose slightly to $107.98 billion in February from the revised $107.69 billion in January, and is more than enough to help the country withstand external headwinds, according to Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno.

He said the latest GIR level represents a more than adequate external liquidity buffer equivalent to 10.2 months’ worth of imports of goods and payments of services and primary income.

This is more than three times the minimum international threshold of three to four months.

The buffer, Diokno said, is also about 8.4 times the country’s short-term external debt based on original maturity and 5.8 times based on residual maturity,

“The current level of GIR is more than sufficient to withstand adverse external shocks,” the BSP chief said.

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

According to the BSP, the month-on-month increase in the GIR level reflected mainly the upward adjustment in the value of the central bank’s gold holdings due to the increase in the price of gold in the international market, as well as its net income from overseas investments.

Data showed the value of the BSP’s gold holdings went up by 4.4 percent to $9.58 billion in February from $9.18 billion in January.

The Monetary Board lowered the GIR target for 2022 to $112 billion from the original target of $115 billion. The country managed to build up the buffer to an all-time high of $110.12 billion in December 2020, but declined to $108.79 billion in 2021.

Michael Ricafort, chief economist at Rizal Commercial Banking Corp., said the rise in the GIR level was offset by some foreign debt payments made by the national government.

Ricafort said the buffer provides greater support on the peso exchange rate versus any speculative attacks as the local currency breached the 52 to $1 last Monday.

“For the coming months, the country’s GIR could still post new record highs amid the continued growth in the country’s structural inflows from remittances from overseas Filipino workers, business process outsourcing revenues, foreign tourism revenues, as well as foreign investment inflows, most of which are among record highs,” Ricafort said.

The Philippines exited the pandemic-induced recession that stretched through five quarters, with a gross domestic product (GDP) growth of 5.6 percent last year after shrinking by 9.6 percent in 2020 due to the impact of the   pandemic.

For this year, the Cabinet-level Development Budget Coordination Committee (DBCC) sees the GDP expansion accelerating to a range of seven to nine percent, with inflation falling within the two to four percent target.

Diokno said in a virtual forum organized by the YPO Philippines Inc. that the BSP maintains its position of keeping an accommodative policy environment to ensure the sustainability of the economic recovery.

“The BSP observed that economic growth appears to be gaining traction amid improved mobility and sentiment due to the calibrated relaxation of quarantine protocols and continued progress in the government’s vaccination program,” Diokno said.

Given the ongoing recovery, Diokno said the priority of the central bank continues to be maintaining policy support for the domestic economy and avoiding a premature exit from pandemic-relief response measures to prevent long-term economic scarring.

“The prevailing policy stance is also supported by a manageable inflation outlook and anchored inflation expectations,” the BSP chief said.