Despite the Bangko Sentral ng Pilipinas’ (BSP) active US dollar selling, the BSP does not expect the country's dollar reserves to fall below $90 billion this year and in 2023.
BSP Governor Felipe M. Medalla said they still project healthy gross international reserves (GIR). “Our projected year-end GIR is above $90 billion,” Medalla said confidently when asked if they see the foreign exchange (FX) reserves dropping to the $80 billion level due to spot market interventions.
The GIR as of end-October was at $94.1 billion from $93 billion in end-September. It was replenished after the government deposited some of the proceeds from its global bond issuance in the same month.
The BSP had originally estimated a GIR of $105 billion for 2022 before the peso depreciation, the higher-than-expected inflation and large US interest rate hikes. By mid-September, the BSP revised its GIR forecast to $99 billion for this year and $100 billion for 2023. The BSP has not yet announced its latest GIR projections.
The rule of thumb is that a GIR is adequate if it can finance at least three months’ worth of the country’s imports of goods and payments of services and primary income. At $94 billion, the GIR is equivalent to about 7.5 months’ worth of imports of goods and payments of services and primary income. It is also 6.7 times the country’s short-term external debt based on original maturity, and four times based on residual maturity.
The BSP’s reserve assets consist of foreign investments, gold, FX, reserve position in the International Monetary Fund (IMF), and special drawing rights.
The IMF in a Nov. 28 Article IV Consultation, which was a concluding report with the Philippine economic officials including the BSP, said that in a “disruptive market” where there is tighter FX liquidity, a central bank’s FX market intervention can calm markets and ease pressures off monetary policy.
FX interventions would lead to lower reserves. FX intervention is conducted by monetary authorities to influence foreign exchange rates by buying and selling currencies in the foreign exchange market. Foreign exchange intervention is intended to contain excessive fluctuations in foreign exchange rates and to stabilize them.
The BSP’s US dollar stock have declined since April this year. From $108.79 billion end-December 2021, the GIR fell below $100 billion in July, for the first time since 2020. Its lowest level for this year was $93 billion in September. The peso depreciated to P59 on Sept. 29, the record low since breaking the previous low of P56.45 in 2004.
The IMF in the same report estimates Philippine reserves will end at $94.1 billion this year. For 2023 and 2024, however, the GIR is seen to drop to $88.7 billion and $83.9 billion, respectively.