THE PESO could gain some support even amid some volatility within the foreign exchange market because the Philippines’ dollar reserves hit its highest level in over a 12 months, analysts said.
“The relatively higher GIR (is seen) to supply a greater buffer for the peso exchange rate vs. the US dollar, as fundamentally supported by the continued growth within the country’s structural US dollar inflows especially from OFW (overseas Filipino employee) remittances, BPO (business process outsourcing) revenues, tourism receipts, foreign investments, amongst others,” Rizal Business Banking Corp. Chief Economist Michael L. Ricafort said in an e-mail.
This got here after the country’s gross international reserves (GIR) stood at a 16-month high of $112.515 billion in January, climbing by an annual 8.95% from $103.271 billion a 12 months ago, based on preliminary data from the Bangko Sentral ng Pilipinas (BSP).
It was the very best GIR level for the reason that $112.707 billion recorded at end-September 2024.
Month on month, it went up by 1.52% from $110.833 billion in December.
Analysts said the uptick in foreign reserves was driven by higher dollar inflows in addition to valuation gains from the central bank’s foreign investments and gold holdings.
“The jump in GIR mainly reflects stronger dollar inflows — from exports, BPOs, and remittances — alongside higher valuations of the BSP’s foreign investments and gold holdings, which helped push reserves to their highest in over a 12 months,” Jonathan L. Ravelas, a senior adviser at Reyes Tacandong & Co., said in a Viber message.
International reserves are the central bank’s foreign assets held mostly as investments in foreign-issued securities, foreign exchange and monetary gold, amongst others.
These are supplemented by claims to the International Monetary Fund (IMF) in the shape of reserve position within the fund and special drawing rights (SDRs).
The BSP said the extent of dollar reserves in January is sufficient to cover about 4.1 times the country’s short-term external debt based on residual maturity.
It also equates to 7.5 months’ value of imports of products and payments of services and first income, greater than double the three-month standard.
“The newest GIR level ensures availability of foreign exchange to fulfill balance of payments financing needs, reminiscent of for payment of imports and debt service, in extreme conditions when there are not any export earnings or foreign loans,” the BSP said in an announcement released late on Friday.
Preliminary central bank data showed that its gold holdings amounted to $20.667 billion at end-January, surging by 75.87% from the $11.751 billion seen a 12 months ago. It also climbed by 11.25% from $18.578 billion at end-December.
Nevertheless, the central bank’s foreign investments fell by 0.47% 12 months on 12 months to $85.966 billion in January from $86.368 billion a 12 months ago, and by 1.11% from $86.926 billion a month ago.
Meanwhile, the Philippines’ reserve position within the IMF stood at $730.2 million, up by 8.77% from $671.3 million a 12 months earlier and by 0.4% from $727.3 million within the previous month.
SDRs — or the quantity the Philippines can tap from the IMF’s reserve currency basket — were 5.66% higher at $3.943 billion as of end January from $3.732 billion last 12 months. It was unchanged from December.
Alternatively, the BSP’s foreign exchange holdings soared by 61.48% to $1.208 billion from $748.2 million the prior 12 months and by 83.34% from $659 million at end-December.
“With GIR now comfortably above traditional adequacy metrics, it gives the BSP enough firepower to smooth volatility, reassure markets, and keep the peso from overshooting even when global conditions turn choppy,” Mr. Ravelas said.
Meanwhile, John Paolo R. Rivera, a senior research fellow on the Philippine Institute for Development Studies, said the newest GIR level equips the BSP with ample resources to guard the peso from excessive fluctuations.
“While it cannot fully prevent depreciation driven by global USD (US dollar) strength and risk sentiment, the present reserve level helps anchor market confidence and allows calibrated intervention to stop disorderly currency swings,” he added via Viber.
The local unit had a weak performance at the beginning of the 12 months because it continued to trade across the P58- to P59-a-dollar level. On Jan. 15, it closed at P59.46 against the greenback, breaking the previous record low of P59.44 seen just the day prior.
On Friday, the local unit gained 10.5 centavos to shut at P58.585 versus the dollar from its P58.69 finish on Thursday.
The BSP expects GIR to succeed in $110 billion by yearend. — Katherine K. Chan