Bangko Sentral ng Pilipinas (BSP) Governor Eli M. Remolona is confident the country has enough foreign exchange (FX/forex) reserves to buck global shocks or spillovers and even a US recession.
“There is a risk of a global economic slowdown that will also drag us down a little bit. It's a good thing that we have ample reserves,” said Remolona in a recent Congressional budget hearing.
As of end-July this year, the BSP reported a gross international reserves (GIR) of $99.7 billion, higher than end-June’s $99.38 billion. While the GIR is still below $100 billion, the central bank expects it to return to this level by the end of 2023 and in 2024. The highest level so far for this year is in April at $101.76 billion.
Remolona said the GIR has “hovered around” $100 billion and “we expect it to remain at roughly the same level in the coming year.”
“I think that the foreign reserves that we have are ample because...They're ample in the face of what we hope will not be so bad,” he said.
Remolona expects global spillovers this year and in 2024.
“We expect the world to slow down next year because of... especially, because of what the Fed has done. The Fed has tightened so aggressively. It's bound to slow down the US economy, maybe even cause a mild recession in the United States, but it will also cause a slowdown around the world. And this poses risks to us because there are accidents, financial accidents, that could happen and it's a good thing that we have ample reserves to defend us against those negative global spillovers,” said Remolona.
The US Federal Reserve has raised its rates by a combined 500 basis points (bps) since 2022. The BSP responded by bumping up its own rates by 425 bps to re-anchor inflation expectations and ease pressures off the peso versus a strong US dollar.
In an interview with Nomura economist Euben Paracuelles last Aug. 10, Remolona reiterated that the Philippines have ample FX reserves which, despite FX interventions, are still intact.
“At this stage, we’re not really using them, but we have these buffers in case needed,” he said.
He also said the BSP is worried about the “tightening of global financial conditions” and that he thinks the US may have to deal with a “mild recession” but “not the whole world.”
“But there’s always the risk of accidents given how much interest rates have risen over a short period of time. I find similarities to the 1994 Fed tightening cycle followed by the Tequila crisis, and you can trace the Asian financial crisis to that tightening too. The literature now calls it ‘the global dollar cycle.’ I lived through that and to me it has some resonance in today’s situation,” said Remolona.