Forex reserves steady at $94 billion

MANILA, Philippines — The country’s foreign exchange buffer held steady at $93.95 billion in November from $94.03 billion in October amid strong dollar remittances from overseas Filipino workers, revenues from the business process outsourcing (BPO) sector and tourism receipts.

The Bangko Sentral ng Pilipinas (BSP) said yesterday the month-on-month decrease in the gross international reserves (GIR) level reflected mainly the national government’s payments of its foreign currency debt obligations and the central bank’s net foreign exchange operations.

The GIR 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.

Michael Ricafort, chief economist at Rizal Commercial Banking Corp. (RCBC), said the end-November GIR level was the lowest in two months or since the $93 billion booked last September.

Ricafort said the current level was reflected in the month-on-month decrease in foreign investments by $670 million and in foreign exchange holdings by $111 million.

These, he explained, were offset by the monthly increase in gold reserves by $689 million, reflecting the 8.3 percent month-on-month increase in world gold prices.

Despite the decline, the BSP said  the latest GIR level represents a more than adequate external liquidity buffer equivalent to 7.5 months’ worth of imports of goods and payments of services and primary income.

According to the BSP, the buffer is also about 6.9 times the country’s short-term external debt based on original maturity and 4.2 times based on residual maturity.

For the remaining month of the year, Ricafort said the GIR could still increase due to the seasonal increase in OFW remittances, BPO revenues and foreign tourism, especially toward the Christmas season.

Ricafort also cited the continuous inflow of foreign direct investments, the proceeds of the proposed US dollar-denominated bond issuance by the national government as early as December or the first quarter of next year as well as the recent narrowing of the trade deficit from record levels.

However, Ricafort said the rising inflows could still be offset by some foreign debt payments and possible foreign exchange intervention activities.

The peso has bounced back to the 55 to $1 handle after slumping by as much as 15.7 percent to an all-time low of 59 to $1 in October due to the aggressive rate hikes by the US Federal Reserve.

To tame inflation and stabilize the local currency, the BSP Monetary Board has so far raised key policy rates by 300 basis points to a 14-year high of five percent and has actively participated in the foreign exchange market to smoothen the volatility.

Inflation averaged 5.6 percent after accelerating to a 14-year high of eight percent in November from 7.7 percent in October, way above the BSP’s two to four percent target.

Ricafort said the relatively high GIR could still strengthen the country’s external position, which is a key pillar for the country’s continued favorable credit ratings for the second straight year from S&P Global Ratings, Moody’s Investors Service and Fitch Ratings.

The BSP now expects the GIR to settle at $99 billion instead of $105 billion this year and $100 billion instead of $106 billion next year.

During the height of the COVID-19 pandemic, the central bank boosted the country’s GIR to hit an all-time high of $110.12 billion in 2020 to fortify the country’s defenses in case of external shocks.

Several lawmakers and Finance Secretary Benjamin Diokno are pushing for the establishment of a P250-billion sovereign wealth fund to be called Maharlika Investment Fund which can  include the country’s foreign exchange buffer, a move strongly opposed by current BSP Governor Felipe Medalla.