Dollar reserves climb to 3-month high in May

MANILA, Philippines — The country’s foreign exchange buffer climbed to its highest level in three months in June, boosted by the national government’s foreign currency deposits and investment income of the Bangko Sentral ng Pilipinas (BSP), although reserves remained lower than a year earlier.

Preliminary data from the BSP showed gross international reserves (GIR) inched up by 0.8 percent to $104.8 billion in end-June from $103.99 billion in end-May. This was the highest level since the $106.64 billion recorded in March.

However, the latest GIR level was still 1.1 percent lower than the $106 billion recorded in June last year.

“Gross international reserves remained adequate at $104.8 billion as of end-June,” the BSP said.

“These provide sufficient foreign currency to meet the country’s import needs, service its external debt obligations and serve as a buffer against external economic shocks.”

The BSP said the increase in reserves was mainly driven by the national government’s net foreign currency deposits with the central bank as well as the BSP’s net income from its investments abroad.

These were partly offset by “downward valuation adjustments, primarily driven by changes in prices of the BSP’s gold holdings and foreign currency-denominated reserve assets” and government drawdowns on its foreign currency deposits with the BSP for external debt service.

RCBC chief economist Michael Ricafort said the monthly increase was largely supported by proceeds from the government’s latest $2.5-billion global bond issuance, which was settled on June 24.

Foreign currency reserves in currency and deposits surged by 176.3 percent to $2.3 billion in June from $831.7 million in May. However, these remained 48.3 percent lower than the $4.45 billion in the same month last year.

Ricafort said the year-on-year decline partly reflects possible foreign exchange intervention in recent months, as the peso hit a record low of 61.75 against the dollar on May 18 and continued to hover near record lows.

Gold holdings, meanwhile, fell by 11.7 percent to $17.19 billion from $19.48 billion in May. Still, gold reserves were higher by 24.6 percent from $13.8 billion a year earlier, helping cushion the overall GIR.

Ricafort said the month-on-month decrease in BSP gold holdings was due to the 11.7-percent decline in world gold prices in June.

The end-June GIR was enough to cover 6.8 months’ worth of imports of goods and payments of services and primary income. The buffer is also equivalent to about 3.7 times the country’s short-term external debt based on residual maturity.

By international convention, reserves are considered adequate if they can finance at least three months of imports. At its current level, the country’s reserve stock remains well above that benchmark despite the recent decline.

The BSP expects the country’s GIR to reach $104 billion this year and $105 billion in 2027.