Dollar exchange reserves held by the central bank rose in February to the highest level in more than a year as the economy’s bigger income from abroad allowed authorities to stock up on foreign exchange.
Higher foreign exchange reserves give the Philippine economy a bigger buffer from external stresses, which may arise from shifting investor sentiment overseas.
At the end of February, the country’s gross international reserves (GIR) rose to $81.34 billion, the highest since December 2013. In January, dollar reserves stood at $80.7 billion, the Bangko Sentral ng Pilipinas (BSP) reported yesterday.
“The increase in reserves was due mainly to the national government’s net foreign currency deposits and the BSP’s foreign exchange operations and income from investments abroad,” the BSP said in a statement.
Partially offsetting the gains were revaluation on the BSP’s gold and other foreign currency holdings. Foreign debt payments made by the national government also kept the gains down.
The country’s reserves were enough to cover 10.4 months’ worth of imports and 8.6 times the country’s short-term external debt based on original maturity.
The increase in reserves points to a likely surplus in the country’s January balance-of-payments (BOP) position, which 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. Inflows come in the form of remittances, revenues from certain industries such as business process outsourcing (BPO) and tourism, investments and export sales. Foreign debt payments, the importation of goods and divestment by foreign funds are counted as outflows.
Excess foreign exchange that enters the country is 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.
A deficit in the BOP, meanwhile, prompts the BSP to dip into its reserves to release dollars into the economy, which helps stabilize the peso.
In 2014, the country posted a BOP deficit of $2.88 billion—the first deficit since 2004. Year-on-year, foreign exchange reserves were down by $3.65 billion.