Foreign exchange reserves hit $79.8B in end-2014

MANILA, Philippines–The country’s last line of defense from external shocks—the central bank’s dollar reserves—remained ample at the end of 2014, helping ensure the continued stability of the domestic economy in the months to come.

Documents released by the Bangko Sentral ng Pilipinas (BSP) showed the country’s gross international reserves (GIR) jumped by the most since February of last year.

At the end of 2014, the BSP said the country’s reserves rose to a four-month high of $79.8 billion from a revised $78.68 billion at the end of November. The government in November said it expected the country to end the year with $79 billion to $80 billion in dollar reserves.

The country’s reserves were worth roughly 10.2 times the economy’s monthly import bill. It was also enough to cover 8.4 times the country’s external debt based on original maturity.

“The increase was mainly due to the BSP’s foreign exchange operations, revaluation adjustments on its gold holdings, income from investments abroad as well as the national government’s net foreign currency deposits,” the BSP said.

Changes in the amount of reserves held by the central bank are usually indicators of the country’s balance-of-payments (BOP) position for the same month. The BOP is an accounting of all transactions between the Philippines and the rest of the world.

The BOP is the difference between the amount of money that enters and leaves the country. By the end of the year, the country is expected to post a BOP deficit of $3.4 billion, much worse than last year’s $5.1-billion surplus.

As of November of last year, the country had a BOP deficit of $3.7 billion—a result mainly of record outflows in January as investors fled local markets amid changing economic tides overseas. Excess foreign exchange that enter the country are often bought by the BSP from the open market to keep this surplus from affecting the peso’s value excessively. These dollars are then held as reserves.

BOP deficits lead to the central bank dipping into its reserves to flood foreign exchange markets with dollars to keep the peso firm. Economies need a steady supply of foreign currencies to allow private companies and the government to do business with the rest of the world.