Forex reserves slip to $81.2 billion in January

By Lawrence Agcaoili

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BSP Governor Nestor Espenilla Jr. said the month-on-month decline in the gross international reserves (GIR) was due mainly to outflows arising from the foreign exchange operations of the BSP and payments made by the national government for its maturing foreign exchange obligations. File

MANILA, Philippines — The country’s foreign exchange buffer slipped marginally to $81.2 billion in January from $81.57 billion in December last year, the Bangko Sentral ng Pilipinas (BSP) said.

BSP Governor Nestor Espenilla Jr. said the month-on-month decline in the gross international reserves (GIR) was due mainly to outflows arising from the foreign exchange operations of the BSP and payments made by the national government for its maturing foreign exchange obligations.

He said the decrease was partially tempered by the government’s net foreign currency deposits, revaluation adjustments on the BSP’s gold holdings resulting from the increase in the price of gold in the international market, as well as its income from investments abroad.

Data showed the gold holdings of the central bank inched up 1.97 percent to $8.5 billion in January from $8.37 billion in December.

The GIR is the sum of all foreign exchange flowing into the country. The reserves serve 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.

If it deems necessary, the BSP buys or sells dollars from the foreign exchange market to prevent a sharp depreciation or appreciation of the peso.

The BSP 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 end-December GIR level remains adequate as it can cover 8.2 months’ worth of imports of goods and payments of services and primary income, according to Espenilla.

The BSP chief added the buffer is also equivalent to 5.8 times the country’s short-term external debt based on original maturity and 4.2 times based on residual maturity.

“At this level, the GIR represents more than ample liquidity buffer,” Espenilla said.

For this year, the BSP sees the GIR level thinning to $80 billion equivalent to 7.5 month’s worth of imports of goods and payments of services and primary income.

Last year, the GIR level stood at $81.47 billion, exceeding the revised full-year target of $80.7 billion.

After emerging as the worst performing currency as it depreciated by a little over four percent to hit a fresh 11-year low of 51.77 to $1 in Oct. 25, the peso rallied strongly and ended the year at a six-month high of 49.93 to $1 or about 0.4 percent weaker than the 2016 close of 49.72 to $1.

Espenilla earlier said the peso depreciated last year even as foreign direct investments flowed in, a reversal of foreign portfolio investment flows as well as loan prepayments was felt in the financial account.

“The BSP’s first line of defense has been to maintain a flexible exchange rate while providing foreign currency liquidity from its amply supply of foreign exchange reserves to manage sharp movements.

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