MANILA, Philippines — The country’s foreign exchange buffer stayed above the $100-billion level despite slipping for the third straight month in May as the national government paid maturing foreign obligations, according to the Bangko Sentral ng Pilipinas (BSP).
Preliminary data released by the central bank showed that the gross international reserves (GIR) slipped slightly to $101.29 billion in May from $101.76 billion in April.
This was the lowest since the $98.22 billion recorded in February.
“The month-on-month decrease in the GIR level reflected mainly the national government’s net foreign currency withdrawals from its deposits with the BSP to settle its foreign currency debt obligations and pay for its various expenditures, and downward adjustments in the value of the BSP’s gold holdings due to the decrease in the price of gold in the international market,” the central bank said.
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 can use in case of external shocks.
Despite the slight decline in May, the BSP said the GIR level represents more than adequate external buffer.
According to the BSP, the buffer is equivalent to 7.6 months’ worth of imports of goods and payments of services and primary income. It is also about 5.9 times the country’s short-term external debt based on original maturity and 4.2 times based on residual maturity.
Despite a slight decline in May, China Bank chief economist Domini Velasquez said the latest GIR level provides comfort that the BSP has ample ammunition to stem excessive volatility and depreciation of the peso.
Velasquez said this was crucial given the possibility of another rate hike by the US Federal Reserve, which would narrow the BSP’s interest rate differential with the Fed to below 100 basis points.
“Moreover, the GIR level showed that the Philippines can comfortably cover our external debt obligations, which bodes well in maintaining our investment-grade sovereign credit rating,” Velasquez said.
By convention, GIR is viewed to be adequate if it can finance at least three months’ worth of the country’s imports of goods and payments of services and primary income. It is also considered adequate if it provides at least 100 percent cover for the payment of the country’s foreign liabilities, public and private, falling due within the immediate 12-month period.
Latest data showed the value of the central bank’s gold holdings declined slightly to $10.21 billion in May from $10.24 billion in April, while its foreign investments slipped to $85.41 billion from $85.77 billion.
The BSP dipped into the buffer to actively intervene in the foreign exchange market to help the peso strengthen to as high as 53.68 to $1 last Feb. 3 from an all-time low of 59 to $1 last October. The peso is now back to the 56 to $1 handle
With the aggressive rate hikes and active intervention in the foreign exchange market by the BSP, the peso ended 2022 at 55.755 to $1, 9.3 percent weaker than the end-2021 level of 50.999 to $1.
After hitting an all-time high of $110.12 billion in 2020, the forex buffer has steadily declined to $108.79 billion in 2021 and $96.15 billion in 2022.
After exceeding the $93 billion target last year, the BSP now expects the GIR level to settle at $100 billion this year and at $102 billion next year.