RP forex reserves hit $27.9b

PHILIPPINE NEWS SERVICE — The gross international reserves rose to an all-time high of $27.9 billion at the end of July, exceeding the target for the end of the year, the Bangko Sentral ng Pilipinas reported yesterday.

“The significant month-on-month increase in reserves was attributable mainly to… continued foreign exchange inflows and receipts of investment income from abroad,” it said. “These inflows were partly offset, however, by the debt service payments of the national government.”

The end-July international reserves were an improvement from the end-June level of $26.38 billion.

The international reserves, consisting of dollars, gold and other foreign currencies held by the central bank, are an important indicator for creditors, investors and credit ratings agencies as they show the country’s ability to pay for its foreign obligations.

The end-July foreign reserves were enough to pay for more than five times the country’s imports and thrice the country’s short-term debt.

The central bank had initially planned to shore its foreign reserves to $26 billion to $26.5 billion by the end of the year, which many found extremely conservative given its huge amount of foreign exchange swaps.

Foreign exchange operations, including purchases of dollars in the spot market and forex swap transitions, contributed to the higher reserves.

Forex swaps represent dollars that the central bank lends to banks for a fee for a specified period of time in exchange for pesos. They allow the central bank to sterilize the huge capital inflows as the dollars are immediately converted into pesos and locked up in vaults.

The central bank’s forex swaps amounted to $9.625 billion at the end of June, down from May’s $10.06 billion. Some $4.8 billion of the swap agreements matured in July and another $4.155 billion are to expire from August to September.

Huge inflows from stock market investments and remittances from Filipino migrant workers were partly offset by the debt service payments of the national government.

Central bank data show that government’s maturing foreign obligations amounted to $889.7 million in July, of which $540.29 million represented principal payments and $349.41 million in interest payments.

The central bank has been the main buyer of dollars in the spot currency market as most banks have been shorting in anticipation of a further appreciation of the peso.

The central bank in April eased the regulations on foreign exchange operations by allowing banks to hold more dollars. It also doubled the amount of dollars that individuals can buy without documentation and increased the amount that Filipino firms can invest abroad without its approval to $15 million from $6 million.

The more liberalized environment aims to ease the burden of the central bank in buying the dollar flows.

The central bank is expected to further liberalize its foreign exchange regulations to make them easier on banks and other companies to invest abroad.