Gov’t debt payments, local stocks’ sale lower PH dollar stash

Bangko Sentral ng Pilipinas. (File photo / Philippine Daily Inquirer)

MANILA, Philippines—The amount of foreign exchange held in stock by the Philippine central bank dipped slightly in May as the government used some US dollars to repay its maturing obligations, according to the regulator.

In a statement, the Bangko Sentral ng Pilipinas (BSP) said the country’s gross international reserve level, based on preliminary data, settled at $106.98 billion as of end-May 2021 from the end-April 2021 level of $107.71 billion.

“The month-on-month decrease in the [dollar reserve] level reflected outflows mainly from the foreign currency withdrawals of the national government from its deposits with the BSP to pay its foreign currency debt obligations and various expenditures,” the agency said.

These outflows were partly offset, however, by inflows from the BSP’s foreign exchange operations, income from its investments abroad and an upward adjustment in the value of the BSP’s gold holdings due to the increase in the price of gold in the international market.

Despite this, the agency said that the latest gross international reserve level represents a “more-than-adequate external liquidity buffer” equivalent to 12.2 months’ worth of imports of goods and payments of services and primary income.

“Moreover, it is also about 7.4 times the country’s short-term external debt based on original maturity and 5.1 times based on residual maturity,” the central bank said.

By convention, dollar reserves are viewed to be adequate if they can finance at least three-months’ worth of the country’s imports of goods and payments of services and primary income.

Net international reserves—the difference between the BSP’s gross reserves and total short-term liabilities—fell by $730 million to $106.96 billion as of end-May 2021 from the end-April 2021 level of $107.69 billion.

ING Bank Manila senior economist Nicholas Mapa said the BSP’s foreign currency reserves remained at “comfortable” levels and added that that the was dip partly due to “heavy foreign selling” by fund managers invested in the local equities market.

He added that central banks around the region have been building up their reserves in anticipation of a reversal of the loose monetary policy in developed nations which will cause capital to flow back to countries like the US.

“With the Fed’s [chair Jerome] Powell currently signaling that policy support will likely be around for a tad bit longer, it looks like the defenses will hold for now,” said Mapa. “But we have noted how central banks like the BSP have strategically been topping up their [gross international reserves] wall one brick at a time until the impending storm while managing the recovery from the pandemic.”

TSB