June GIR declines to lowest level since 2011

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GROSS international reserves (GIR) continued to decline at the mid-year point to their lowest level in nearly seven years, with the central bank continuing to intervene in the foreign exchange market to defend the peso.

The Banko Sentral ng Pilipinas (BSP) reported on Friday that GIR declined 1.92% month-on-month to $77.675 billion in June. The indicator fell 4.48% from a year earlier.

This was the lowest level since the $75.302 billion GIR recorded in December 2011.

“The month-on-month decline in the GIR level was due mainly to outflows arising from the foreign exchange operations of the BSP, revaluation adjustments on the BSP’s gold holdings resulting from the decrease in the price of gold in the international market, and payments made by the National Government (NG) for its maturing foreign exchange obligations,” the BSP said in a statement.

The central bank sometimes intervenes in the foreign exchange market to temper sharp swings during the daily peso-dollar trading sessions.

“These were partially tempered by the NG’s net foreign currency deposits as well

as the BSP’s income from its investments abroad,” the BSP added.

The central bank’s gold holdings fell to $7.913 billion last month from $8.197 billion in May. They rose from the year-earlier $7.835 billion level.

The BSP’s offshore investments decreased to $62.455 billion in June from $63.924 billion in the previous month, and fell from $68.16 billion in June 2017.

Foreign currency holdings rose to $5.615 billion from $5.46 billion in May and $3.695 billion a year earlier.

Reserves held under the International Monetary Fund (IMF) grew to $489.6 million last month from $418.7 million in May and $452.8 million a year earlier.

Special drawing rights, or the amount which the Philippines can tap under the IMF’s reserve currency basket, were steady at $1.203 billion.

“At this level, the GIR nonetheless continues to serve as an ample external liquidity buffer and is equivalent to 7.5 months’ worth of imports of goods and payments of services and primary income,” the BSP said.

The central bank also said reserves can cover up to six times the country’s short-term external debt obligations and 4.1 times when computed in residual terms.

International reserves — which serve as buffers against external financial shocks — are composed of gold, the BSP’s assets expressed in foreign currency, IMF quotas, and foreign currency deposits held by government and state-run firms.

Sought for comment, Land Bank of the Philippines market economist Guian Angelo S. Dumalagan said that the reserve outflows may be due to the monetary policy tightening in the US, which has caused the dollar to strengthen.

“The drop in reserves can be attributed to the repatriation of foreign funds as a result of the interest rate normalization of the US. This has caused massive swings in the domestic currency, prompting the BSP to intervene,” he said in an email on Friday.

On June 28, the peso closed at P53.515 against the dollar, its weakest level in 12 years.

Mr. Dumalagan added that the current GIR levels are still at comfortable despite the continuous decline.

“I do not think that the drop warrants much concern for now. It does, however, necessitate close monitoring of our GIR level to make sure that it remains high enough to shield the country from external headwinds,” he said.

Emmaunuel A. Leyco, a professor at the Asian Institute of Management, said in a mobile phone message that the current reserves “still leave room for policy flexibility for now.”

“Key concern right now is to stabilize the peso while managing the impact of a growing inflation,” he added. — Elijah Joseph C. Tubayan