Forex reserves thin to 7-year low

The country’s foreign exchange buffer thinned to its lowest level in more than seven years at $75.16 billion in September as the Bangko Sentral ng Pilipinas (BSP) continued to smoothen the volatility in the foreign exchange market.

Gross international reserves (GIR) reached $2.77 billion last month, lower than the $77.83 billion booked in August that was boosted by the $1.4 billion raised by the national government from the sale of the multi-tranche samurai bonds.

This was also the country’s lowest GIR since hitting $71.88 billion in July 2011.

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

BSP officer-in-charge Diwa Guinigundo said the month-on-month decline in the GIR level was due mainly to outflows arising from the foreign exchange operations of the central bank as well as the payments made by the national government for its maturing foreign exchange obligations.

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 US 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 the third weakest currency after the Indian rupee and Indonesian rupiah as it depreciated by over eight percent to its lowest level in 13 years.

Guinigundo also cited the revaluation adjustments on the BSP’s gold holdings resulting from the decrease in the price of gold in the international market as another factor that led to the decline in the country’s foreign exchange buffer.

The value of the central bank’s gold holdings amounted to $7.58 billion in end September, $44.8 million lower than the $7.62 billion recorded in August.

Guinigundo said the decline in the GIR level was partially tempered by the national government’s net foreign currency deposits.

“At this level, the GIR nonetheless continues to serve as an ample external liquidity buffer and is equivalent to 6.8 months’ worth of imports of goods and payments of services and primary income,” he added.

This was the first time since March 2009 that the import cover fell below seven months and the lowest since December 2008 when the import cover was at 6.4 months.

The buffer is also equivalent to 5.9 times the country’s short-term external debt based on original maturity and 4.2 times based on residual maturity, the BSP said.

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