Outflows fail to dent BSP forex reserves

Despite the continued net outflow of hard currency caused by more attractive investment yields overseas, the Philippines’ foreign exchange reserves remained at comfortable levels at the end of the first quarter, the central bank said on Friday.

In a press statement, Bangko Sentral ng Pilipinas Deputy Governor Cyd Tuaño-Amador said the country’s gross international reserves (GIR) stood at $80.1 billion at the end of March, representing only a slight dip from the $80.4 billion in the previous month.

These reserves are held by the central bank, accumulated when local firms earn dollars from their exported goods and services, or when foreign investors enter the local economy and convert their dollars to pesos. Conversely, these reserves are dissipated when locals buy goods and services from overseas, or when foreign funds leave the country.

Tuaño-Amador attributed March’s marginal decline mainly to outflows arising from the foreign exchange operations of the central bank and payments made by the national government for its maturing foreign exchange obligations.

These outflows were partially tempered by the government’s net foreign currency deposits, which included proceeds from the issuance of renminbi-denominated “panda” bonds for the government’s general financing requirements, and revaluation adjustments on the BSP’s gold holdings resulting from the increase in the price of gold in the international market.

More importantly, however, the end-March 2018 level of dollars in the central bank’s vaults serve as an ample external liquidity buffer and is equivalent to 7.8 months’ worth of imports of goods and payments of services and primary income, Tuaño-Amador said.

This level is also equivalent to 5.6 times the country’s short-term external debt based on original maturity and 4.1 times based on residual maturity.

Net international reserves —which refer to the difference between the BSP’s gross reserves and total short-term liabilities—likewise decreased by $300 million to $80.1 billion as of end-March from the end-February level of $80.4 billion.

Last month, Monetary Board member Felipe Medalla said the central bank could afford to expend as much as $20 billion of its dollar reserves to accommodate dollar outflows, and in the process help minimize peso volatility, in lieu of raising its key interest rates.

This jibed with an earlier statement made by BSP Governor Nestor Espenilla Jr. who noted that the country had more dollars that it needed in reserve, to a large degree because of the inflows that occurred in the wake of the US Fed’s ultra-low interest rate regime implemented to counter the global financial crisis a decade ago.