The Philippines’ dollar reserves slipped slightly in April as the central bank spent more hard currency to stabilize the volatile peso and the national government settled some foreign debt, the Bangko Sentral ng Pilipinas said on Monday.
BSP Governor Nestor Espenilla Jr. stressed that the country’s $80.1 billion in gross international reserves (GIR) at the end of April “serves as an ample liquidity buffer”—enough to meet the needs of long-term investors repatriating their funds to their home countries or fund managers moving their so-called “hot money” to find better yields overseas.
“At this level, the [dollar reserves are] equivalent to 7.8 months’ worth of imports of goods and payments of services and primary income,” Espenilla said. “It is also equivalent to 5.5 times the country’s short-term external debt based on original maturity and 4.1 times based on residual maturity.”
The April 2018 dollar reserve level was slightly lower than the $80.5 billion recorded at the end of March.
Persistent dollar outflows—due to a large degree to rising interest yields abroad as central banks of developed countries raise their interest rates after the decade-long “quantitative easing” binge—have dampened the flow of capital into the country in recent months.
But Espenilla pointed out earlier that current GIR levels were double those of preglobal financial crisis numbers and that there was enough buffer to meet the dollar requirements of exiting fund managers.
Monetary Board member Felipe Medalla had also said that the central bank could afford to expend as much has $20 billion worth of dollar reserves to satisfy the current trend.
In addition to the BSP’s foreign exchange operations and government debt repayments, the month-on-month decline in the reserve level was also due mainly to revaluation adjustments on the BSP’s gold holdings resulting from the decrease in the price of gold in the international market.
These were partially tempered by the BSP’s income from its investments abroad and the national government’s foreign currency deposits.
Net international reserves— which refer to the difference between the BSP’s gross reserves and total short-term liabilities—likewise decreased by $500 million to $80 billion as of end-April 2018 from the end-March 2018 level of $80.5 billion.
The country’s dollar reserve levels are closely linked with the overall balance-of-payments (BOP) position, which represents the total net transactions of the country with overseas parties.
The amount of dollars that left the Philippine economy in the first quarter of 2018 already blew past the central bank’s full-year target due mainly to a yawning merchandise gap with overseas trading partner.
The country’s cumulative BOP position for the January-March period posted a higher deficit of $1.23 billion compared to the $994-million deficit recorded in the same period of last year.
The amount of dollars that flow into or out of the Philippine economy directly affects the country’s dollar reserves position as well as the value of the peso and, ultimately, the prices of local goods and services.