The country’s foreign exchange reserves hit a record high of $71 billion in July, rising from $49 billion in the same period last year, according to the Bangko Sentral ng Pilipinas.
“The appreciable buildup in the reserves level was due mainly to the foreign exchange operations and income from investments abroad of the BSP,” the central bank said in a statement.
Because of the increase in the inflow of dollars to the country due to remittances and foreign portfolio investments, the BSP was prompted to buy dollars in a bid to slow down the appreciation of the peso.
The strengthening of the peso against the US dollar has been cited as a cause for concern among the country’s exporters as a strong peso makes their products less competitive in the global marketplace.
Central bank officials added that volatility in the currency is bad for business and the overall economy.
If not for the dollar buying by the BSP, the peso, which closed at 42.14 in the last trading day of July and has already appreciated by about 4 percent since the start of the year, could have been even stronger.
This is because dollar inflows—in the form of remittances and foreign investments in domestic bonds, stocks, and other securities—have been robust this year.
Foreign portfolio investments have been rising at an unusually high pace, as foreign investors seek higher yields from emerging markets like the Philippines, as the economic situation, and thus income opportunities, in advanced economies remain anemic.
Data from the BSP showed that in the first semester, net inflows of foreign portfolio investments reached $2.4 billion, over three times higher than the $687 million registered in the same period last year.
Remittances are likewise strong despite challenges confronting Filipino migrant workers in some foreign labor markets.
Money sent by overseas-based Filipinos reached $7.9 billion in the first five months of the year, rising by 6.2 percent from $7.4 billion in the same period last year.
The BSP also said that the increase in prices of gold in the international market boosted reserves. Of the GIR, about $7.7 billion is invested in gold.
The country’s outstanding foreign exchange reserves are enough to cover 10.6 months worth of imports, and 6.1 times the country’s foreign currency-denominated debts maturing within the short term.
The country’s foreign exchange reserves are above the minimum prescribed by international standards, which state that a country’s GIR should be enough to cover four months worth of imports.
The BSP said that the comfortable level of foreign exchange reserves was one of the factors that helped the country get favorable credit rating actions.
In June, Moody’s Investors Service upgraded its credit rating for the Philippines from three to two notches below investment grade. In the same month, Fitch Ratings raised its rating for the country from two to one notch below investment grade.