Bond sale lifts forex reserves in August

The country’s foreign exchange buffer strengthened in August due to strong inflows after the national government raised $1.4 billion from the sale of multi-tranche Samurai bonds.

Bangko Sentral ng Pilipinas Governor Nestor Espenilla Jr. said last month’s gross international reserves (GIR) reached $77.83 billion or $1.1 billion higher than the revised $76.72 billion in July.

This ended the thinning of the reserves for the past four months after hitting $80.51 billion last March.

The GIR is the sum of all foreign exchange flowing into the country. It serves as buffer to ensure that the Philippines would not run out of foreign exchange that it could use to pay for imported goods and services, or maturing obligations in case of external shocks.

Espenilla said the month-onmonth improvement in the foreign exchange buffer was due mainly to inflows arising from the national government’s net foreign currency deposits as well as the central bank’s income from investments abroad.

The national government sold $1.39 billion worth of Samurai bonds in three different tenors last Aug. 8 to finance the government’s funding requirements and partially finance massive infrastructure projects under the Build Build Build program.

Espenilla said the improvement in the GIR level in August was partially tempered by payments made by the national government for its foreign exchange obligations, foreign exchange operations of the central bank, and revaluation adjustments of its gold holdings.

Data showed the value of the BSP’s gold holdings slipped 2.11 percent to $7.62 billion in August from $7.79 billion in July.

The BSP uses the buffer to buy or sell dollars if it deems necessary to prevent sharp depreciation or appreciation of the peso. It has allowed the moderate and gradual depreciation of the peso against the dollar as part of its mandate to smoothen the volatility in the foreign exchange market and to support the expanding economy.

The peso has emerged as one of the weakest currencies this year, depreciating by over six percent to its lowest level in almost 13 years to 53.8 to $1 last Thursday. It almost touched the 54 to $1 level on Friday.

The end-August GIR level remains as an adequate external liquidity buffer and is equivalent to 7.5 months’ worth of imports of goods, and payments of services and primary income.

The buffer is also equivalent to 6.2 times the country’s short-term external debt based on original maturity and 4.2 times based on residual maturity.

The BSP expects the GIR level to reach $80 billion this year, equivalent to 7.2 month’s worth of imports of goods and payments of services and primary income.