With debt payments and spot market interventions, the country’s US dollar reserves further dropped to $98.97 billion as of end-August from $99.84 billion end-July, Bangko Sentral ng Pilipinas (BSP) data showed.

Compared to same period in 2021 when the reserves was at $107.96 billion, the foreign exchange buffer has lost $8.98 billion.

The BSP-monitored gross international reserves (GIR) fell below $100 billion in July at the time when the peso was depreciating fast from P52 vis-à-vis the greenback to P56. By Sept. 2 the peso breached P57 intraday and closed at this rate on Sept. 6.

When the BSP intervenes in the peso-US dollar spot market, it releases foreign currency to relieve the pressure off the peso. This kind of intervention is a way of effectively tightening monetary policy by mopping up the peso equivalent of the US dollar it is releasing.

From July to August, the BSP may have sold over $1.2 billion of foreign exchange in the spot market to temper exchange rate pressures.

The BSP’s market-determined exchange rate policy has the benefit of reducing the negative impact of external shocks as a floating exchange rate can appreciate or depreciate immediately to stabilize the country’s balance of payments.

The GIR at $99 billion is still considered “adequate external liquidity buffer” by the BSP. It is equivalent to 8.3 months’ worth of imports of goods and payments of services and primary income. The current level is also about 7.1 times the country’s short-term external debt based on original maturity and 4.6 times based on residual maturity.

The central bank said a GIR is “viewed to be adequate if it can finance at least three-months’ worth of the country’s imports of goods and payments of services and primary income.” The BSP also explained that reserves will be considered sufficient if it provides at least 100 percent cover for the payment of the country’s foreign liabilities, public and private, falling due within the immediate twelve-month period.

Meantime, the BSP said the month-on-month decrease in the GIR level is mainly due to the National Government’s foreign currency withdrawals from its BSP deposits to pay for foreign currency-denominated debts and other expenses. The reduction in the global price of gold also affected the country’s gold reserves.

The GIR is the country’s reserve assets composed of gold holdings, foreign investments, foreign exchange, reserve position in the International Monetary Fund and special drawing rights.

As of end-August, the BSP’s gold holdings amounted to $8.53 billion, down from end-July’s $8.76 billion.

About $84.12 billion of the GIR are foreign investments such as in securities and other instruments abroad. The amount is higher compared to end-July’s $83.52 billion.

It was in July this year when the GIR broke past $100 billion, the first time it fell below this level since December 2020.

For this year, the BSP has downgraded its GIR forecast to $105 billion from its earlier estimate of $108 billion. At the current level and because of the continued depreciation of the local currency, the BSP will likely revise the GIR forecast for both 2022 and 2023 soon.