by Lee C. Chipongian, Manila Bulletin
In defending the peso vis-à-vis the strong US dollar, the country’s foreign exchange reserves has fallen to a 30-month low of $95.014 billion as of end-September this year, the Bangko Sentral ng Pilipinas (BSP) reported over the weekend.
Based on BSP data, the gross international reserves (GIR) has lost $5.84 billion since June 1 when the local currency started to rapidly depreciate from P52.4 to P55.02 versus the greenback by June 30.
The GIR is BSP’s war chest against speculative attacks against the peso. Speculative attacks on currencies occur when there is excessive, large volume of foreign exchange selling in the hope that the central bank will run out of reserves and thus a currency crisis will ensue, and speculators with a foreign currency hoard will be able to dictate market price.
It was in July when the GIR first dropped to below the $100 billion level after peaking at $108.79 billion in December 2021.
In July and August, the BSP recorded the exchange rate at P54, P55 and P56. The peso broke its 2004 record low of P56.45 in September. It was also in September when the peso also breached P57, P58 and P59 which was its new all-time low.
The BSP insisted it does not target an exchange rate but it will intervene in the spot market to ease pressures off the peso. The Monetary Board has already raised the policy rate by a cumulative 225 basis points (bps) to smoothen exchange rate volatilities.
Along with the BSP rate hikes, the central bank has been releasing foreign reserves to curb further peso depreciation. However, the central bank’s exchange rate policy continue to support a freely floating exchange rate system where the BSP leaves it to market forces to dictate the exchange rate level.
The BSP will only enter the spot market to ensure “order and temper destabilizing swings” in the peso-US dollar rate. And, if needed, the BSP will release US dollar liquidity to supply legitimate demands for foreign currency.
After dropping to below the $100 billion level in July, the GIR continued to decline to $97.44 billion in August and $95.01 billion in September.
The current GIR was $11.58 billion lower compared to same period in September 2021.
At $95.01 billion, the BSP still consider this level as “more than adequate external liquidity buffer” which was equivalent to 7.6 months’ worth of imports of goods and payments of services and primary income. It was also about 6.8 times the country’s short-term external debt based on original maturity and 4.1 times based on residual maturity.
From August’s GIR of $97.44 billion, the reserves declined by $2.43 billion month-on-month. According to the BSP, the month-on-month decrease “reflected mainly the National Government’s payments of its foreign currency debt obligations and downward adjustment in the value of the BSP’s gold holdings due to the decrease in the price of gold in the international market.”
The GIR is composed of BSP’s reserve assets as foreign investments, gold reserves, foreign exchange, reserve position in the International Monetary Fund or IMF, and special drawing rights.
In September, BSP’s managed foreign investments amounted to $80.62 billion, down from August’s $82.73 billion and from same period last year’s $89.70 billion.
Gold holdings also dropped to $8.33 billion in September versus $8.53 billion previously, and from $8.85 billion same time in 2021. The foreign exchange component of the GIR in September totaled $1.67 billion, down from the previous month’s $1.77 billion.
Last Sept. 16, the Monetary Board approved revised external accounts to reflect the latest developments in the international environment.
The BSP revised the GIR projection lower to $99 billion in 2022 from its previous estimate of $105 billion.
Basically, the GIR is BSP’s foreign assets invested in foreign-issued securities, monetary gold, and foreign exchange. The emerging 2022 GIR is equivalent to 7.5 months import cover, lower than the previous forecast of eight months of import cover.
