GROSS INTERNATIONAL RESERVES (GIR) rose to a six-month high as of end-January, as foreign currency deposits with the central bank included the proceeds from the Philippine government’s global bond issuance.

Preliminary data released by the Bangko Sentral ng Pilipinas (BSP) late on Tuesday showed the GIR increased by 3.7% to $99.7 billion in January, from the $96.1 billion as of end-December 2022. Year on year, dollar reserves fell by 7.4%.

This is the highest level of dollar reserves since the $99.84 billion posted in July 2022.

“The month-on-month increase in the GIR level reflected mainly the National Government’s (NG) net foreign currency deposits with the BSP, which include proceeds from its issuance of ROP (Republic of the Philippines) global bonds,” the central bank said in a statement.   

Foreign currency deposits more than doubled to $2.11 billion as of end-January, from $942.8 million in the previous month and from the $831.7-million level a year ago.

The Marcos administration raised $3 billion from its second global bond issuance in January. The Bureau of the Treasury (BTr) sold $500 million worth of 5.5-year bonds, $1.25 billion worth of 10.5-year bonds, and $1.25 billion worth of 25-year sustainability bonds.

The central bank also attributed the higher GIR to “the upward valuation adjustments in the value of the BSP’s gold holdings due to the increase in the price of gold in the international market, and net income from the BSP’s investments abroad.”

As of end-January, the level of dollar reserves is enough to cover about six times the country’s short-term external debt based on original maturity and four times based on residual maturity.

It is also equivalent to 7.5 months’ worth of imports of goods and payments of services and primary income.

Ample foreign exchange buffers protect an economy from market volatility and ensure the country is able to pay its debts in the event of an economic downturn.

“The BSP continues to rebuild its GIR, (and it’s) now close to $100 billion. Although most of the increase was due to the ROP issuance and valuation, the BSP may have also been able to rebuild its buffer stock via foreign exchange operations,” ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa said in an e-mail.

In a note, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said the GIR may have also picked up in January after the seasonal increase in US dollar and foreign currency inflows. He noted the higher holiday-related spending in December may have continued into the new year.

According to the BSP, net international reserves increased by $3.6 billion or 3.7% to $99.7 billion as of end-January 2022 from $96.1 billion a month prior.

Net international reserves are the difference between the BSP’s reserve assets (GIR) and reserve liabilities such as short-term foreign debt, and credit and loans from the International Monetary Fund (IMF).

Broken down, the central bank’s foreign investments reached $83.25 billion, up by 2.3% from the $81.37 billion in the previous month. Year on year, foreign investments slumped by 10.4%.

The country’s reserve position in the IMF inched up 0.9% to $797.3 million as of end-January from $789.8 million in the prior month. Year on year, it slipped by 0.4%.

Reserves in the form of gold were valued at $9.80 billion as of end-January, up by 5.6% from the $9.28 billion as of end-December 2022 and up by 6.8% from the $9.18-billion level a year earlier.

Special drawing rights — or the amount the country can tap from the IMF — was unchanged at $3.764 billion for the second straight month. However, it was 4.3% lower year on year.

“BSP has displayed that it was able to weather the 2022 storm with the bulk of its GIR intact as the cache of foreign reserves was able to help allay concerns about dollar liquidity at the height of financial market stress,” Mr. Mapa said.

The BSP intervenes in the foreign exchange market to smoothen volatility.

Mr. Mapa said he expects GIR to inch up in the next few months “on expectations for a mild appreciation trend for the peso.”

Mr. Ricafort said GIR growth could be supported by rising remittances, business processing outsourcing revenues, exports, as well as a fast recovery in foreign tourism.

The BSP projects the GIR level at $93 billion by end-2023. — Keisha B. Ta-asan

HEADLINE INFLATION “most likely” peaked in January, but there could be surprise shocks that may affect prices moving forward, Bangko Sentral ng Pilipinas (BSP) Governor Felipe M. Medalla said on Wednesday.

“(Inflation) was actually higher than the high end of our forecast,” he told reporters in a Viber message.

Inflation accelerated to a fresh 14-year high of 8.7% in January from 8.1% in December. This is well above the 7.5% to 8.3% forecast range given by the BSP.

Mr. Medalla said inflation “most likely” peaked in January. “(But) of course, I can’t rule out another surprise supply shock.”

January marked the 10^th consecutive month that inflation was above the BSP’s 2-4% target range.

The BSP in a statement late on Tuesday said the January inflation data showed the “need for sustained efforts to combat price pressures, particularly non-monetary government measures to mitigate the impact of persistent supply-side constraints.”

“The BSP remains focused on restoring inflation to the government target and stands ready to adjust its monetary policy settings as necessary to anchor inflation expectations and safeguard the inflation target over the policy horizon,” it said.

The BSP expects inflation to average 4.5% this year before easing to 2.8% in 2024.

In a note released on Wednesday, Nomura Global Market Research revised its full-year inflation forecast in the Philippines to 5.6% in 2023 from 4.4% previously after the release of the faster-than-expected January print.

“Food price inflation may remain high for a while as supply constraints may not be easily resolved, as recent episodes have demonstrated,” Nomura said.

It noted that second-round effects will “likely be larger and last for longer,” keeping core inflation high.

Core inflation, which excludes volatile prices of food and fuel, jumped to 7.4% in January from 6.9% in December and 1.8% in the same month in 2022. This is the fastest core inflation print in more than two decades or since 8.2% in December 2000.

“If food price inflation remains high, as we now expect, other related items, particularly food services, will also likely pick up, as we have seen in other countries in the region,” Nomura said.

Food inflation quickened to 11.2% from 10.6% a month ago and 1.6% in January 2022, which was the fastest since the 11.3% in March 2009.

Nomura said the continued increase in power rates may also exacerbate second-round effects, and contribute to higher inflation.

“On monetary policy, we maintain our forecast that BSP will hike its policy rate by 25 bps (basis points) in each of the next two monetary board meetings in February and March, taking the policy rate to 6%, which would be our forecast for the terminal rate in this hiking cycle,” Nomura said, adding that the probability of a 50-bp hike at the Feb. 16 meeting is “relatively low.”

The central bank has raised 350 basis points (bps) last year, bringing its benchmark policy rate to a 14-year high of 5.5%.

Nomura said the BSP could cut rates by 50 bps by the fourth quarter as inflation is expected to ease, bringing the policy rate back to 5.5% by end-2023.

“This would also be more consistent with our new CPI (consumer price index) inflation forecast with a trajectory in which inflation returns to BSP’s 2-4% target only by Q4. In 2024, we also now see a lower policy rate of 4.5% versus 5% previously, consistent with our US team’s view of a lower fed funds rate,” it added.

Meanwhile, ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa said the BSP’s cumulative rate hikes already slowed investments, but not consumer revenge spending.

“BSP has been one of the most active central banks in the region. This alongside the fact that the Philippines still records the fastest inflation in ASEAN (Association of Southeast Asian Nations) suggests that rate hikes were never the right tool to meet supply side-oriented inflation head-on,” Mr. Mapa said.

He expects to see a further slowdown in capital formation as the “lagged impact of aggressive tightening takes hold.”

The Philippine economy grew by 7.2% in the fourth quarter, bringing the full-year expansion to 7.6%.

Gross capital formation, the investment component of the economy, grew by 5.9% last quarter, though slower than 21.8% in the third quarter and 14.2% a year ago. Full-year growth was 16.8%, slower than 20.3% in 2021.

“Rate hikes were never designed to snuff out excessive revenge spending but BSP’s recent raising of credit card rate caps will be the right tool to cool some excess demand,” Mr. Mapa added. — Keisha B. Ta-asan