THE country’s dollar holdings continued to expand in December after registering declines in previous months, as the peso strengthened against the greenback toward the end of 2018.
The Bangko Sentral ng Pilipinas (BSP) on Monday reported that the country’s gross international reserves (GIR) rose to $78.46 billion in December, 3.7 percent higher than the previous month’s level. This is the second consecutive month that the Philippines’s overall dollar reserves posted an increase.
BSP Deputy Governor and Officer in Charge Diwa Guinigundo attributed the positive development to the Central Bank’s “better foreign exchange conditions.”
“[The December] level was higher than the $75.68-billion level recorded in November 2018, due mainly to inflows arising from the BSP’s foreign-exchange operations, net foreign currency deposits by the national government and revaluation gains from BSP’s gold holdings resulting from the increase in the price of gold in the international market,” Guinigundo said.
The rise could have been higher, according to Guinigundo, if not for the payments made by the government for servicing its foreign exchange obligations.
The country’s GIR is the level of foreign exchange holdings of the Central Bank during a given period. It is a crucial component of the economy as it is often used to manage the country’s foreign exchange rate against excess volatilities.
The local currency performed generally better in December, trading at an average of 52.769 to a dollar compared to 52.808 recorded in November.
The peso was at its worst in 2018 in October when it traded at 54.009 to a dollar. Also, the country’s GIR level was at its lowest last year in October at $74.71 billion.
The Central Bank keeps a certain volume of GIR as it will be used to maintain liquidity in case of an economic crisis. This ensures that the country has enough dollars for imports and prevents shortages should instability arise.
At its end-December level, the BSP said the GIR continues to serve as “an ample liquidity buffer” as it remains equivalent to 6.9 months’ worth of imports of goods and payments of services and primary income. It is also equivalent to 5.8 times the country’s short-term external debt based on original maturity and four times based on residual maturity.
The international rule of thumb for foreign exchange reserves is to keep at least three months worth of imports for safeguarding.
Compared to its neighbors, however, the country’s dollar reserves is still below Malaysia’s $101.4 billion as of end-December, which their central bank also reported on Monday. Indonesia’s GIR is at $117.2 billion as of end-November while Thailand’s is at $203 billion in end-November
Following the BSP’s announcement of the GIR level, ING Bank economist Nicholas Mapa said the Central Bank is likely looking to rebuild its dollar reserves this year ahead of potential global economic headwinds.
Image credits: Nonie Reyes