Forex buffer drops to $95 billion in September

MANILA, Philippines — The country ‘s foreign exchange buffer slipped for the seventh straight month to $95.01 billion in September from the revised $97.44 billion in August, as the peso continues to hit record low levels amid the continued strengthening of the dollar, according to the Bangko Sentral ng Pilipinas (BSP).

Data from the BSP showed that this was the lowest level since the gross international reserves (GIR) stood at only $93.44 billion in June 2020.

“The month-on-month decrease in the GIR level reflected mainly the national government’s payments of its foreign currency debt obligations and 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 said.

Michael Ricafort, chief economist at Rizal Commercial Banking Corp., attributed the continued thinning of the country’s foreign exchange buffer to the $2.5 billion decline in foreign investments amid the global financial markets selloff largely due to more aggressive US Fed rate hikes, as well as the possible intervention in the foreign exchange market by the BSP to defend the peso.

“The decline in the GIR somewhat correlated with the weaker peso in recent months,” Ricafort said.

The peso slumped to a new record low of 59 to $1 on Oct. 3 as the greenback continued to strengthen against major currencies.

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

The country’s foreign exchange buffer has been declining since February this year. It remained below $100 billion for the past three consecutive months.

The buffer is now $15.11 billion or 13.7 percent lower than the record-high $110.12 billion recorded in December 2020.

Data showed the value of the central bank’s gold holdings dipped anew by 2.3 percent to $8.33 billion in September from $8.53 billion in August. The value of the BSP’s gold stash has been declining since March due to low global prices.

Likewise, investments continued to slump for eight consecutive months, reaching $80.62 billion in September from $82.73 billion in August. This was the lowest in eight months or since the $77.88 billion recorded in April 2020.

Despite the steady decline, the BSP said the latest GIR level represents a more than adequate external liquidity buffer as it is equivalent to 7.6 months’ worth of imports of goods and payments of services and primary income.

The latest GIR level is also about 6.8 times the country’s short-term external debt based on original maturity and 4.1 times based on residual maturity.

Despite the steady drop, Ricafort said the GIR level is still way above the minimum international threshold of three to four months, enough to provide buffer or cushion on the peso exchange rate versus any speculative attacks.

For the coming months, he said that the country’s GIR could still be supported by the continued growth in remittances from overseas Filipino workers, revenues from the business process outsourcing industry, tourism receipts and foreign direct investment inflows.