The country’s gross international reserves climbed to a 33-month high of $85.38 billion in June from $85.36 billion in May and near the record level of $86.139 billion recorded in September 2016, data from the Bangko Sentral ng Pilipinas show.
Bangko Sentral ng Pilipinas Governor Benjamin Diokno said in a statement the increase in reserves was due mainly to inflows arising from the revaluation gains from the BSP’s gold holdings resulting from the increase in the price of gold and the national government’s net foreign currency deposits.
The value of BSP’s gold holdings as of end-June reached $8.855 billion, higher than $8.332 billion a month ago.
Other reasons cited for the spike in reserves were the Bangko Sentral’s foreign exchange operations and its income from investments abroad.
The increase in reserves was tempered by payments made by the government to service its foreign exchange obligations.
“The end-June 2019 level of GIR serves as an ample external liquidity buffer and is equivalent to 7.4 months’ worth of imports of goods and payments of services and primary income. It is also equivalent to 5.1 times the country’s short-term external debt based on original maturity and 3.7 times based on residual maturity,” Diokno said.
Net international reserves or the difference between the BSP’s GIR and total short-term liabilities also increased by $0.02 billion to $85.36 billion in June from $85.34 billion in May.
ING Bank Manila senior economist Nicholas Mapa said the GIR was nearing its pre-2018 level.
“Gross international reserves rose again to $85.4 billion as the central bank slowly rebuilds its buffer stock of foreign currency. Quickly rebuilding its defenses after a substantial drawdown in 2018, the BSP now boasts of a formidable cache of reserves to fend off any speculative attack on the currency,” Mapa said in a report.
He cited the previous statement of Diokno that the Philippines had “enough FX buffer” for any attack, indicating that the regulator merely intervenes should there be sharp flows, in either direction while simultaneously acting as insurance in the event of that “rainy day."
Mapa said the peso came under heavy pressure in 2018 as global headwinds mounted with twin tempests emanating from the Fed rate hike cycle (+100 bps) and the risk off sentiment stemming from the global trade war.
“Domestically the Philippines faced above-target inflation induced by rice and oil prices and a BSP deemed to be behind the curve but reducing reserve requirements. The confluence of these factors forced the peso to weaken throughout the course of the year; the ‘rainy day’ was upon the Philippines,” he said.
Mapa said with the “GIR defenses rebuilt and the Philippines standing tall after taking the worst that the global headwinds could throw at it, BSP would be wise to simply carry out a cursory presence in the FX spot market and utilize monetary policy for its real directive: price stability conducive for robust economic growth.”
The peso on Friday closed at 51.195, slightly weaker than 51.13 on Thursday.