PH forex reserves reach new high
Increased dollar purchases of BSP, higher gold pricesBy Michelle V. Remo
Philippine Daily Inquirer
The country’s foreign exchange reserves posted a new high of $79.3 billion in July, fueled by the rising prices of gold and the central bank’s dollar-buying activities.
The gross international reserves (GIR)—which an indictor of the country’s ability to pay for imports, settle debts to foreign creditors and engage in other commercial transactions with the rest of the world—was up by about 10 percent as of the end of July from $71.9 billion in the same period last year.
It was also higher by about 4 percent from the previous month’s $76.1 billion.
According to the Bangko Sentral ng Pilipinas, the foreign-exchange reserves were enough to cover 11.7 months worth of the country’s import requirements. The amount was also 6.4 times the country’s foreign currency-denominated debts maturing within the short term.
The increase in the world market price of gold provided a big boost to the reserves. Of the total reserves, gold holdings accounted for $10 billion.
The BSP’s dollar-buying activities further boosted the GIR. The central bank resorted to heavier-than-usual buying of dollars in July to help prevent a sharper and sudden rise of the peso.
Although it has a policy that allows the market to determine the exchange rate, the central bank intervenes to prevent wild swings in the exchange rate.
The BSP said a sharp and sudden rise or fall of the peso was bad for the economy.
The rising inflows of foreign currencies to the country allowed the BSP to engage in heavy dollar buying.
Remittances by overseas Filipinos remained the country’s biggest source of foreign currencies.
Foreign exchange inflows were further boosted by the rising foreign portfolio investments and the strong capital infusion into the business process outsourcing industry.
The dollar inflows in July pushed the peso to break into the 41-to-a-dollar territory and reach levels that were last seen four years ago.
The strengthening of the peso elicited complaints from the export sector. Exporters said their growth targets for the year might no longer be met given the adverse impact of the peso appreciation.
A strong peso makes Philippine-made goods more expensive and, thus, less competitive in dollar terms.
While a weak peso is beneficial to the export sector, it also has some disadvantages, BSP officials said.
They said a weak peso made imported goods, such as oil, more expensive which could cause an accelerated pace of inflation.
Given the varying effects of a strong and weak peso on different sectors of the economy, the BSP said it was prudent to maintain a neutral stance on the exchange rate and to simply avoid too much volatility.
In the meantime, the BSP said the country’s growing GIR, one of the indicators of its improving creditworthiness, was one of the favorable factors that should help the Philippines get an investment grade from global credit watchers soon.
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