The Bangko Sentral ng Pilipinas (BSP) continued to build its dollar defenses in June, marking its eighth consecutive month of beefed up international reserves during the month.
The BSP was able to raise the country’s gross international reserves (GIR) by $20 million in a month’s time, to end June at $85.38 billion.
The country’s gross international reserves (GIR) is the level of foreign exchange holdings the Central Bank has during a given period. The GIR is a crucial component of the economy as it is often used to manage the country’s foreign exchange rate against excess volatilities.
The BSP said the month-on-month increase in the GIR level was due mainly to inflows arising from the revaluation gains from the BSP’s gold holdings resulting from the increase in the price of gold in the international market, National Government’s (NG) net foreign currency deposits,BSP’s foreign exchange operations, and BSP’s income from its investments abroad.
The rise in reserves could have been larger, however, if not tempered by payments made by the NG for servicing its foreign exchange obligations.
The GIR took a beating towards the end of the year in 2018 to 7-year lows, as the BSP battled to smoothen out volatilities in the then depreciating value of the local currency against the dollar. It also came at a time when sentiment was down due to the accelerating inflation, which also peaked at 6.7 percent during those months.
GIR hit its lowest level in 2018 at $74.7 billion in October.
At its current level, the BSP said the GIR serves as an “ample external liquidity buffer” and is equivalent to 7.4 months’ worth of imports of goods and payments of services and primary income.
It is also equivalent to 5.1 times the country’s short-term external debt based on original maturity and 3.7 times based on residual maturity.
ING Bank economist Nicholas Mapa said the current level of GIR is now formidable enough for the country to withstand potential shocks in 2019.
“Quickly rebuilding its defenses after a substantial drawdown in 2018, the BSP now boasts a formidable cache of reserves to fend off any speculative attack on the currency,” he said.`