Forex buffer hits 2-year high

MANILA, Philippines — The country’s dollar reserves rose to a 23-month high in March due to higher government deposits with the central bank and higher gold prices in the international market, according to the Bangko Sentral ng Pilipinas (BSP).

Based on preliminary data released by the BSP, the country’s foreign exchange buffer inched up by two percent to $104.03 billion in March from $101.99 billion in February. It was also 2.4 percent higher than the $101.55 billion in the same month last year.

This was the highest gross international reserves level since the $105.4 billion recorded in April 2022. The March GIR level has also been above the $100-billion mark for the sixth straight month or since October 2023.

“The month-on-month increase in the GIR level reflected mainly the national government’s net foreign currency deposits with the BSP, 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 net income from the BSP’s investments abroad,” the central bank said.

The value of the central bank’s gold holdings picked up by 1.8 percent to $10.53 billion in March from $10.34 billion in February, while its foreign exchange holdings surged by 58.9 percent to $1.077 billion from $677.8 million.

Likewise, the central bank’s foreign investments increased by 1.7 percent to $87.91 billion from $86.45 billion, while the reserve position in the fund tumbled to $741.3 million from $752.5 million.

The GIR is the sum of all foreign exchange flowing into the country and serves as a buffer to ensure the economy will not run out of dollars that it can use in case of external shocks. The BSP’s reserve assets include foreign investments, gold, foreign exchange, reserve position in the fund and special drawing rights.

According to the BSP, the March GIR level represents a more than adequate external liquidity buffer, equivalent to 7.7 months’ worth of imports of goods and payments of services and primary income.

It is also about 6.1 times the country’s short-term external debt based on original maturity and 3.7 times based on residual maturity.

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.

The buffer 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.

Michael Ricafort, chief economist at Rizal Commercial Banking Corp., said the GIR picked up largely due to the higher foreign investments amid new record highs in the US and some global stock markets.

Gold prices also rose by more than nine percent month-on-month, reaching new record highs, he said.

“For the coming months, the country’s GIR could still be supported by the continued growth in the country’s structural dollar inflows,” he said. “But this could be offset by government plans to reduce foreign borrowings relative to domestic borrowings in the coming years to better manage foreign exchange risks.”

After hitting an all-time high of $110.12 billion in 2020, the buffer declined to $108.79 billion in 2021 and $96.15 billion in 2022, before picking up to $103.75 in 2023.

After exceeding the $100-billion target last year, the BSP now expects the GIR level to settle at $103 billion this year and at $102 billion next year.