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Forex reserves hit $108 billion

Lawrence Agcaoili – The Philippine Star

November 13, 2021 | 12:00am

Boosted by dollar bonds, higher gold prices

MANILA, Philippines — The first-ever retail dollar bond issuance by the national government and rising gold prices in the world market boosted the country’s foreign exchange buffer to nearly $108 billion in October, 1.3 percent higher than the $106.59 billion recorded a month earlier, according to the Bangko Sentral ng Pilipinas.

BSP Governor Benjamin Diokno said the month-on-month increase in the gross international reserves (GIR) level reflected mainly the national government’s net foreign currency deposits with the central bank.

The government deposited the proceeds of its maiden onshore retail bond sale amounting to $1.59 billion to the BSP. Proceeds of the fund-raising activity will be used to support the government’s widening budget shortfall.

The Philippines has been borrowing heavily from both offshore and onshore creditors to finance the government’s COVID response measures.

Diokno said the upward adjustment in the value of the BSP’s gold holdings due to the increase in the price of gold in the international market also boosted the country’s foreign exchange buffer last month.

The value of the BSP’s gold holdings went up by 3.2 percent to $9.13 billion in October from $8.85 billion in September.

Likewise, the Philippines received 1.96 billion special drawing rights (SDR) allocation worth $2.78 billion from the International Monetary Fund (IMF) on Aug. 23, helping boost the country’s foreign exchange buffer.

The IMF launched the unprecedented $650 billion SDR allocation to provide additional liquidity to member countries particularly during this period as efforts are exerted to address the COVID-19 crisis.

IMF member countries can exchange their SDRs for hard currencies with other IMF members. Considered hard currencies are the US dollar, euro, Chinese yuan, Japanese yen and the British pound.

As a result, the country’s SDR stood at $3.96 billion in October from $1.22 billion in July.

The GIR is the sum of all foreign exchange flowing into the country and serves as buffer to ensure that the government will not run out of foreign exchange that it can use in case of external shocks.

“The latest GIR level represents a more than adequate external liquidity buffer,” Diokno said.

The BSP chief said the buffer is equivalent to 10.8 months’ worth of imports of goods and payments of services and primary income. It is also about 7.8 times the country’s short-term external debt based on original maturity and 5.4 times based on residual maturity.

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

The Philippines has been building up its foreign exchange buffer to hit a record $110.12 billion in December as the government borrowed more from foreign creditors to finance its COVID response measures.

The BSP usually acts to smoothen the volatility or sharp fluctuations in the foreign exchange market using the buffer. The peso has been depreciating this year as the US Federal Reserve has turned hawkish and has decided to reduce its bond buying program.

After appreciating by more than five percent to close at a four-year high of 48.04 to $1 in 2020 from 50.635 to $1 in 2019, the peso emerged as one of the weakest currencies in the region as it continues to range between 50 and 51 against the $1.

The BSP sees a record GIR of $114 billion this year and another all-time high of $115 billion next year.

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