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December FX reserves top BSP forecast

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FOREIGN CURRENCY reserves recovered in December on the back of higher gold valuations and bigger foreign investment gains, to settle above the central bank’s yearend projection.

Gross international reserves (GIR) totalled $78.461 billion for the month, improving from November’s $75.682-billion level in November though still below the year-ago $81.57 billion, the Bangko Sentral ng Pilipinas (BSP) said on Monday.

Still, the latest amount settled above the revised $76-billion forecast of the central bank.

This is also the highest reserve level in seven months, or since the $79.202 billion recorded in May, and marks the second straight month of rising reserves.

“The BSP looks to rebuild its stash of foreign currency buffer ahead of potential headwinds moving into 2019. Despite indications for a more dovish Fed, the PHL is still projected to run current account deficits given the economies stark demand for imported capital machinery and raw materials,” Nicholas Antonio T. Mapa, senior economist at ING Bank NV-Manila, said in an e-mail to journalists.

“BSP is likely looking to rebuild GIR after seeing its stockpile slide to $74.71 bn when the peso was buffeted by heightened risk-off sentiment from September and October on expectations of runaway inflation and $100/barrel oil,” Mr. Mapa noted.

“Furthermore, aside from its usual source of FX (OF remittances, exports and BPO receipts) the PHL has access to international financial markets with the government expected to float another $-denominated bond in the near term,” he added.

“As such, the PHL has ample reserves to help allay investors’ concerns about its projected current account deficit for 2019, with the GIR buildup seen to be a boon by credit ratings agencies.”

DRIVERS
In a statement, the central bank attributed December’s higher GIR to inflows from its foreign exchange operations, coupled with net foreign currency deposits and revaluation gains from the BSP’s gold holdings.

The value of the BSP’s gold holdings rose to $8.154 billion in December from $7.776 billion in November, although it was lower than the year-ago $8.337 billion.

Income from the central bank’s foreign investments amounted to $66.092 billion, up by 7.8% from the previous month’s $61.318 billion and 0.42% bigger than the year-ago $65.815 billion.

In contrast, the central bank’s foreign currency holdings were halved to $2.564 billion from November’s $4.932 billion and from $5.783 billion a year ago, data showed.

The central bank uses its dollar reserves to temper sharp swings in the exchange rate. The peso pared its losses in December as it traded at the P52 level, ending the year at P52.58 against the greenback.

Reserves with the International Monetary Fund (IMF) slipped to $473.6 million from November’s $478.8 million, though it was still bigger than the year-ago $424.4 million. The Philippines’ special drawing rights — the amount that can be tapped under the IMF’s reserve currency basket — steadied at $1.177 billion from November but was slightly less than December 2017’s $1.211 billion.

The reserves can cover 6.9 months’ worth of the country’s import payments.

The BSP said this level provides “ample” external liquidity buffer, well above the three-month global standard.

The dollars can also settle up to 5.8 times the country’s short-term external debt based on original maturity — or those falling due in up to 12 months — and four times short-term debt based on residual maturity, or outstanding external debt with original maturity of one year or less, plus principal payments on medium- and long-term loans of the public and private sectors falling due in the next 12 months.

BSP Deputy Governor Diwa C. Guinigundo has said that monetary authorities are looking to rebuild the GIR stash after this eroded for the most part of 2018.

Credit raters have been citing ample GIR level as a source of strength for the Philippines, as it shields the country against external financial shocks that could unduly weigh on the country’s ability to pay foreign obligations. — Melissa Luz T. Lopez