Forex reserves fall to lowest in 3 years

MANILA, Philippines —   The country’s foreign exchange buffer fell to its lowest level in three years in September as the Bangko Sentral ng Pilipinas (BSP)’s foreign exchange operations, lower gold valuations and government withdrawals weighed on reserves.

Preliminary data from the BSP showed gross international reserves (GIR) declined by 4.6 percent to $100 billion as of end-September from $104.85 billion as of end-August.

GIR is the pool of foreign assets held by the central bank, including gold, foreign currency deposits, securities and other reserve assets, that helps the country pay for imports, settle foreign debt and cushion the economy from external shocks.

The latest GIR level was the lowest since September 2023, when reserves hit $98.12 billion. It also fell by 8.3 percent from the $109.06 billion recorded in September last year.

The BSP said the decline was mainly driven by its net foreign exchange operations, downward valuation adjustments in the prices of its gold holdings and foreign currency-denominated reserve assets.

It also cited the national government’s drawdowns on its foreign currency deposits for external debt service and net foreign currency withdrawals from its deposits with the BSP.

SM Investments Corp. group economist Robert Dan Roces said the decline in forex buffer reflects lower gold valuations and the BSP’s efforts to smooth out peso volatility.

However, the GIR level remains comfortable.

The local currency sank to a record low of 62.86 to $1 in September. A weaker peso may prompt the BSP to use part of its forex reserves to smoothen sharp swings in the exchange rate, although officials have repeatedly said they do not target a specific peso level.

“We could see further pressure if the peso remains weak, but our reserves are still more than enough to cover several months of imports. So this is more about managing volatility than worrying about our ability to meet external obligations,” Roces said.

Based on BSP data, foreign currency reserves held in securities, which refer to highly liquid debt instruments, inched up by 0.6 percent to $64.44 billion in September from a month ago. However, this remained lower by 16.3 percent from the same period last year.

Currency and deposits doubled to $3.08 billion from $1.54 billion in August, but were still down by 37.8 percent from a year ago. The BSP said currency and deposits include time deposits, demand deposits and cash holdings.

Gold holdings also fell by 6.7 percent to $17.82 billion, reflecting lower gold valuations during the month. Compared with September last year, however, gold reserves were still higher by 8.8 percent.

Other reserve assets posted the sharpest month-on-month decline, falling by 35.4 percent to $10 billion in September from $15.47 billion in August. These assets include certain short-term investments and accrued interest receivables.

The latest reserves were enough to cover 6.3 months’ worth of imports of goods and payments for services and primary income, down from 6.6 months in August and 7.2 months in September last year.

The GIR was also equivalent to about 3.2 times the country’s short-term external debt based on residual maturity, lower than 3.3 times in August and 4.1 times a year ago.

Philippine Institute for Development Studies senior research fellow John Paolo Rivera said the decline “reflects valuation adjustments, lower foreign investment holdings and possible forex operations amid peso weakness and global volatility.”