Philippines forex buffer hits $101 billion in November

Due to rising gold prices

MANILA, Philippines — Rising gold prices boosted the Philippines’ foreign exchange buffer to a seven-month high of $101.3 billion in November from $101.03 billion in October, according to the Bangko Sentral ng Pilipinas (BSP).

Preliminary data released by the central bank showed the country’s gross international reserves (GIR) stayed above the $100-billion level for the second straight month.

The GIR level last month was the highest since the $101.76 billion recorded in April. The buffer stayed below the $100-billion mark between June and August.

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

“The month-on-month increase in the GIR level reflected mainly the upward valuation adjustments in the value of the BSP’s gold holdings due to the increase in the price of gold in the international market, and the BSP’s net income from its investments abroad,” the BSP said.

The value of the BSP’s gold holdings rose by 2.3 percent to $10.82 billion in November from $10.57 billion in October.

Gold prices have soared to record highs over the past several weeks amid prospects that interest rates have peaked following aggressive rate hikes delivered by global central banks led by the US Federal Reserve.

Future prices for the delivery of gold hit a new intraday high of $2,150 per ounce this week, surpassing the previous peak of $2,051.50 per ounce reached in August 2020.

Gold is considered a safe haven asset amid times of uncertainty or fear in other markets. Investors tend to flock to gold when they are concerned about the value of their investments or cash. Gold, a non-interest bearing asset, tends to be more attractive when interest rates are falling.

The increase in the Philippines’ foreign exchange buffer this year reflected mainly the national government’s net foreign currency deposits with the BSP.

These include the $1.26 billion raised by the government through the issuance of retail onshore dollar bonds.

Additional borrowings by the national government are expected to bolster the GIR level, as it secured an additional $1 billion from its inaugural Islamic or ‘sukuk’ bonds sale, surpassing the original size by 4.9 times.

Similarly, the net international reserves, which refer to the difference between the BSP’s reserve assets and reserve liabilities (short-term foreign debt and credit and loans from the International Monetary Fund (IMF)), increased by $200 million to $100.5 billion as of end-November from the end-October level of $100.3 billion.

According to the BSP, the latest GIR level represents more than an adequate external liquidity buffer.

The GIR level is equivalent to 7.5 months’ worth of imports of goods and payments of services and primary income. It is also about 5.8 times the country’s short-term external debt based on original maturity and 3.6 times based on residual maturity.

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.

The BSP uses the GIR to defend the peso against volatile movements. It dipped into the buffer to actively intervene in the foreign exchange market, helping the peso strengthen to as high as 53.68 to $1 in February, up from an all-time low of 59 to $1 in October last year.

After touching 57 to $1 a few months ago, the local currency has rebounded to the 55 to $1 range.

The BSP expects the GIR level to settle at $99.5 billion this year and at $102 billion next year.