MANILA, Philippines—The country’s foreign exchange reserves are expected to rise in July with the central bank buying dollars from the open market to keep the peso from appreciating too sharply.
Bangko Sentral ng Pilipinass (BSP) Governor Amando M. Tetangco Jr. said the country’s buffer for potential external shocks—the gross international reserves (GIR)—likely expanded this month, providing further support for the Philippine economy.
“We already have estimates up to the middle of the month. The final figure isn’t there yet, but the trend is that it’s going up,” Tetangco told reporters late Tuesday.
The BSP has been buying dollars from the foreign exchange market since the start of the month to keep the peso from appreciating too fast against the greenback.
While the BSP’s main policy is to keep the peso’s value driven by market forces, it occasionally steps in to smoothen out any spikes that may have implications on commodity prices.
Dollars currently make up 60 percent of the country’s GIR. Tetangco said the dollars bought from the open market formed part of the GIR. Keeping the dollar’s value up also benefits the GIR value, which is denominated in dollar although other currencies and even gold are also included in the reserves.
In the meantime, Tetangco said the BSP was actively working on diversifying the types of currencies included in the GIR. One possibility is the inclusion of the Chinese yuan, one of the most liquid currencies in the world today. China is also one of the Philippines’ major trading partners.
“But to be part of reserves, there are certain criteria that have to be met by the currencies,” Tetangco said. He said that based on the rules set by the International Monetary Fund, a currency needs to be easily convertible and its value should be driven by market forces.
The yuan is currently pegged to the US dollar, which means it cannot be included in the country’s reserves, the BSP said.
The country’s GIR at the end of June stood at $81.6 billion, down from $82.9 billion in May.
Despite being lower from the start of the year, the country’s reserves are still enough to cover nearly a year’s worth of import needs. The government has the option to dip into the BSP’s reserves to pay for the importation of goods in the event of a shortage in foreign money.
The BSP earlier said it expected the country’s reserves to reach $87 billion this year.