Philippines FX Buffers Rise Slightly in February as Gold Gets Expensive

MANILA, Philippines — Philippine dollar reserves rose slightly in February as gold holdings at Bangko Sentral ng Pilipinas rose in value as prices rose.

What’s new

Gross international reserves stood at $107.98 billion at the end of February, up 0.26 percent month-on-month, the BSP reported on Tuesday.

why it matters

Foreign exchange reserves are assets managed by the BSP as a lender of last resort. These are mainly investments in gold and foreign currencies that can protect the economy during external shocks.

But the rise in dollar buffers since the pandemic slumped the economy in 2020 has been seen as a symptom of economic weakness, as sluggish domestic demand discourages lower imports, which were once a major driver of US outflows. dollars before the health crisis.

A high level of GIR also explains the strength of the peso during the pandemic. But as demand for dollars returns amid a recovery in imports due to the easing of lockdowns, the local currency has now weakened to the level of 52P per dollar, territory not seen since September 2019.

Despite improving economic conditions last year, the final GIR level in 2021 fell below the 2020 finish of $110.1 billion, which was a record high.

What the BSP says

In a statement, the BSP attributed the increase in the GIR last month to “the upward adjustment in the value of BSP’s gold holdings due to the increase in the price of gold in the international market and of the BSP’s net income from its investments abroad”.

What an analyst says

Nicholas Antonio Mapa, senior economist for ING Bank in Manila, explained that the country’s dollar reserves will prove useful for the BSP’s efforts to manage the peso.

“The GIR will play a key role in BSP’s defense of the peso, which incidentally is one of the worst performing currencies in the region. PHP will be under pressure due to a growing trade deficit, political dissonance with the Fed and in a general tone of risk by geopolitical developments,” he said in a Viber message.

For Mapa, the weakness of the peso could inevitably force the BSP out of reserves.

“We expect BSP to dip into its reserves to stabilize the peso, but we continue to see parallels with 2018, with BSP strongly defending the currency, reducing its reserves by 8% (-$7 billion),” a- he added.

Other figures

  • The latest level of TBA is equivalent to 10.2 months of imports of goods and payments for services and primary income. It is also 8.4 times the Philippines’ short-term external debt on an original maturity basis and 5.8 times on a residual maturity basis.

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