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Gross international reserves falls to 7-year low

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GROSS international reserves (GIR) dropped anew to a seven-year low in September amid lower gold valuations and as the central bank used the stash to defend the currency.

Dollar reserves declined to $75.161 billion last month, down from the $77.934 billion in August and the $80.962 billion level in September 2017, the Bangko Sentral ng Pilipinas (BSP) announced Friday.

This is the lowest reserve stash since the $71.884 billion logged in July 2011, and reverses the pickup seen in August.

In a statement, the BSP attributed the month-on-month decline to outflows arising from its foreign exchange operations, coupled with state payments for maturing foreign currency obligations plus lower gold valuations in the international market.




The value of the BSP’s gold holdings slipped to $7.577 billion last month, down from $$7.622 billion in August and from $8.065 billion year-on-year.

The central bank also touched the reserves to temper sharp swings in the exchange rate, given that the peso traded at the P54 level versus the dollar. The local unit averaged P53.9419 against the greenback in September to mark a fresh 12-year low.

Policy makers have flagged increased volatility in the exchange rate, saying that the series of interest rate hikes should provide a boost to the peso.

The BSP has been employing a “tactical” approach in managing currency swings, with the view that the exchange rate should be market-determined but can also be subject to regulatory interventions to control abrupt or steep changes in the day-to-day rate.

Income from the central bank’s foreign investments also dropped to $59.962 billion coming from $61.776 billion a month prior. The value of the BSP’s foreign currency holdings likewise slipped to $5.947 billion from $6.858 billion in August, mirroring the trend weakness of the peso.

Reserves parked under the International Monetary Fund (IMF) inched lower at $483.6 million, down from $487.2 million previously. Meanwhile, the Philippines’ special drawing rights — or the amount which can be tapped under the IMF’s reserve currency basket — stood steady at $1.191 billion.

On the other hand, higher foreign currency deposits helped offset the outflows, the BSP said.

The current GIR level settled below the $80-billion forecast for the entire year, and is also lower than the $81.57 billion reserves held in December 2017.

With the decline, the September reserves provides cover for 6.8 months’ worth of imports, significantly lower than the 7.1-month buffer for August and 8.1 months’ worth tallied in September 2017. This comes at a time of heavy importations of raw materials and capital goods.

Still, the import cover ratio is still seen as an “ample external liquidity buffer” as it remains well above the three-month global standard.

The GIR is likewise enough to pay for the country’s short-term external debt, as it is worth 5.9 times these duties based on original maturity and 4.2 times when computed in residual terms.

International reserves are made up of gold, the BSP’s assets expressed in foreign currencies, country quotas with the IMF, and foreign currency deposits held by government and state-run firms. This is considered a source of economic strength for the Philippines, as it cushions the economy from external shocks. — Melissa Luz T. Lopez