PH dollar reserves fall to 6-yr low

The Philippines’ dollar reserves fell to their lowest level in six years at the end of last month as investors continued to convert their holdings into foreign currency either to repatriate their assets or to protect them against the peso’s weakness.

In a statement, Bangko Sentral ng Pilipinas Governor Nestor Espenilla Jr. said that the country’s gross international reserves level as of end-June 2018 was lower at $77.68 billion from the end-May 2018 level of $79.2 billion.

This was the lowest since the $75.3 billion recorded at the end of 2011.

“The month-on-month decline in the dollar reserve level was due mainly to outflows arising from the foreign exchange operations of the BSP, revaluation adjustments on the BSP’s gold holdings resulting from the decrease in the price of gold in the international market, and payments made by the national government for its maturing foreign exchange obligations,” he said.

Ample liquidity

These were partially tempered by the national government’s net foreign currency deposits as well as the BSP’s income from its investments abroad.

The June dollar reserve level nonetheless “continues to serve as an ample external liquidity buffer and is equivalent to 7.5 months’ worth of imports of goods and payments of services and primary income,” the central bank chief said.

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

Short-term debt

Net international reserves, which refer to the difference between the BSP’s gross dollar reserves and total short-term liabilities, likewise decreased to $77.65 billion as of end-June 2018, from the end-May 2018 level of $79.18 billion.

Short-term debt based on residual maturity refers to outstanding external debt with original maturity of one year or less, plus principal payments on medium- and long-term loans of the public and private sectors falling due within the next 12 months.

Reversal of fund flows

Monetary Board member Felipe Medalla earlier said that the central bank could afford to expend as much as $10 billion of its dollar reserves to accommodate the repatriation of foreign capital that was being prompted by rising yields in US dollar-denominated securities overseas.

The reversal of fund flows in recent months has been prompted primarily by the tightening of monetary policy in the United States as the Federal Reserve continues to unwind its quantitative easing scheme that has been in place over the last decade.

The outflows of the last few months have made the Philippine peso the second worst performing Asian currency this year after the Indian rupee. Market watchers expect the peso to weaken to as low as P54:$1 by yearend.

On Friday, the peso closed at P53.42 against the US dollar which is unchanged from the previous day’s trading.

At these levels, the local currency is hovering near its 12-year low of P53.55 that was last hit in July 2006.