MANILA, Philippines — The country’s foreign exchange buffer increased for the third straight month to a four-month high of $96.01 billion in December, from $95.12 billion in November, as the rising price of gold in the world market boosted the central bank’s gold holdings.
Last month’s gross international reserves (GIR) were higher than the lowered $93 billion projection of the Bangko Sentral ng Pilipinas (BSP) for 2022.
It was also the highest since the $97.44 billion in August as the buffer increased over the past three months after declining to $93 billion in September.
“The month-on-month increase in the GIR level reflected mainly the BSP’s net foreign exchange operations, the upward valuation adjustments in the value of BSP’s gold holdings due to the increase in the price of gold in the international market, and net income from the BSP’s investments abroad,” the central bank said in a statement.
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.
Latest data showed that the value of the central bank’s gold holdings inched up by 3.6 percent to $9.28 billion in December while income from BSP’s investments abroad grew by 1.3 percent to $81.2 billion.
After hitting an all-time high of $110.12 billion in 2020, the forex buffer steadily declined to $108.79 billion in 2021 and $96.01 billion in 2022.
Despite the decline over the past two years, the BSP said the country’s GIR level represents a more than adequate external liquidity buffer equivalent to 7.3 months’ worth of imports of goods and payments.
The buffer is also about 5.9 times the country’s external debt based on original maturity and 3.9 times based on residual maturity.
Michael Ricafort, chief economist at Rizal Commercial Banking Corp., said that the decline in the buffer over the past two years is somewhat correlated with the relatively weaker peso.
The BSP dipped into the reserves to actively intervene in the foreign exchange market as the peso slumped by as much as 15.7 percent to an all-time low of 59 to $1 in October.
The central bank also raised key policy rates by 350 basis points that brought the overnight reverse repurchase rate to a 14-year high of 5.5 percent from an all-time low of two percent to stabilize the peso and tame inflation.
Inflation accelerated to 5.8 percent last year from 3.9 percent in 2021, exceeding the BSP’s two to four percent target. It hit a 14-year high of 8.1 percent in December from eight percent in November.
With the aggressive rate hikes and active participation in the forex market, the local currency bounced back to the 55 to $1 handle.
However, the peso depreciated by 9.3 percent to end 2022 at 55.755 to $1 from the end 2021 level of 50.999 to $1.
For the coming months, Ricafort said the country’s GIR could still be supported by the continued growth in the country’s structural inflows from remittances sent by overseas Filipino workers (OFWs), revenues from the business process outsourcing sector (BPO), exports, receipts from foreign tourists, and foreign direct as well as portfolio investments.
“Thus, still relatively high GIR at $96.01 billion 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, mostly at one to three notches above the minimum investment grade, a sign of resilience despite the COVID-19 pandemic that caused downgrades in other countries around the world,” Ricafort added.
The BSP now expects the GIR to settle at $93 billion instead of $100 billion this year.