Foreign currency inflows to the country surpassed the outflows in May, with the balance of payments (BOP) hitting a surplus of $138 million during the month, the Bangko Sentral ng Pilipinas reported Tuesday.
The surplus in May was, however, 36 percent lower than the $217 million registered in the same month last year.
BSP Governor Amando Tetangco Jr. said the surplus was brought about largely by the central bank’s income from its investments in foreign currency-denominated securities, mainly US treasuries, and proceeds from its foreign exchange trading.
The central bank buys dollars from the market when there is a strong appreciation pressure on the peso and sells in times of significant downward pressure. According to BSP officials, the exchange rate is generally market-determined, but the central bank intervenes from time to time to avoid sharp movements that hurt businesses.
The country’s BOP performance in May brought the surplus for the first five months of the year to $1.3 billion.
The surplus in the first five months, however, was 73 percent lower than the $4.79 billion posted in the same month last year.
The year-on-year decline in the BOP surplus in the first five months was attributed mainly to the drop in inflows of foreign portfolio investments. Monetary officials attributed this to the global risk aversion caused by the prolonged debt crisis in the eurozone.
A surplus in the BOP boosts the country’s total reserves of foreign exchange, or gross international reserves (GIR).
According to the central bank’s latest forecasts, the BOP is expected to post a surplus of $2.6 billion by the end of this year, while the GIR is seen hitting a new high of between $77.5 billion and $78 billion.
These are slightly lower than the original projections of $2.8 billion and $79 billion for the BOP surplus and GIR, respectively. The central bank revised its projections on account of the ongoing debt turmoil in the Eurozone, which had been adversely affecting investor interest in emerging market assets.
The Philippines’ rising GIR was among the factors that prompted the government to seek better credit ratings for the country.
The BSP said the foreign exchange reserves showed the country’s ability to service its debts to foreigners, thus improving its credit worthiness.
The Philippines is rated two notches below investment grade by Moody’s Investors Service and Standard & Poor’s, and is rated a notch below investment grade by Fitch Ratings.