PH dollar reserves at $106.55B in July
The Philippines’ backup funds to protect the peso against speculative attacks reached $106.548 billion end July, up from the previous month’s $105.762 billion, the Bangko Sentral ng Pilipinas (BSP) said in a statement Friday.
The preliminary gross international reserves (GIR) stood at $7.948 billion, up eight percent year-on-year from $98.600 billion same time in 2020. The final GIR will be reported by the end of August, along with the balance of payments (BOP) report.
The BSP said the National Government’s (NG) net foreign currency deposits and increased gold holdings due to price adjustments in the international market pulled up the GIR in July. The NG recently raised $2.25 billion from its 25-year global bond sale, plus $750 million of 10.5-year tenor bonds.
GIR withdrawals, in the meantime, came from the government’s payment of maturing foreign currency loans and expenses from the BSP’s foreign exchange operations.
“The latest GIR level represents a more than adequate external liquidity buffer equivalent to 12.1 months’ worth of imports of goods and payments of services and primary income. Moreover, it is also about 7.7 times the country’s short-term external debt based on original maturity and 5.1 times based on residual maturity,” according to the BSP.
Generally, GIR is considered adequate buffer when it can finance at least three-months’ worth of imports of goods and payments of services and primary income. A sufficient GIR is also a level that could provide at least 100 percent cover for both public and private foreign liabilities maturing within the next 12 months.
As of end July, the BSP-managed foreign investments totaled $92.146 billion, lower than the previous month’s $92.222 billion. Foreign investments are however higher than same time last year of $81.177 billion or up by $11.045 billion.
BSP’s gold reserves amounted to $9.148 billion which is higher than the previous month’s $8.875 billion. Compared to same time in 2020 of $12.595 billion, gold holdings have declined, starting in December 2020.
GIR also includes the country’s position in the International Monetary Fund (IMF) as a creditor member. This is steady at $1.221 billion in special drawing rights or SDRs which is the IMF’s currency. The Philippines also has a reserve position of $800 million in the IMF.
BSP Governor Benjamin E. Diokno has said early on that he is not worried about the depreciating peso since the BSP --- through the GIR – can defend the local currency from speculative pressures.
The BSP has a free market solution to the foreign exchange market, said Diokno, and they participate only to minimize the fluctuations.
ING Bank economist Nicholas Mapa said in a commentary that while the peso is the region’s best performing currency last year, there was no support for 2021.
“The peso’s fortunes took a quick u-turn by the second quarter 2021 with most analysts tagging the reopening of the economy and the resultant return of import demand as the key reason,” said Mapa. By July, the peso has breached the $50:$1 level.
The widening trade gap, despite steady dollar inflows from remittances and BPO receipts, has contributed to the local currency’s weakness, he noted. The “loss of the key support from the financial account” is also a factor to the peso weakness, with “payments of debt, foreign investors heading to the exits and the now absence of foreign loans (causing) the financial account to reverse polarity as well.”
Mapa said with more outflows than inflows in the financial and current accounts – both components of the BOP -- the net result will be a BOP that “will likely turn red this year with the weakening peso simply a symptom of these twin developments.”
“Missing key support from both the current and financial account accounts, the peso is likely headed for a stark depreciation trend this year especially as the economy struggles to catch a break with lockdowns and fast fading fundamentals weigh on sentiment,” said Mapa.