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BSP dollar reserves dip in May

The central bank’s dollar reserves dipped in May, as the government withdrew foreign currency to use for debt repayments.

Data from the Bangko Sentral ng Pilipinas (BSP) showed the gross international reserves (GIR) declined by 0.67% to $106.978 billion as of end-May, from the $107.705 billion logged as of end-April.

However, this was 14.7% higher than the $93.288 billion in foreign exchange buffers recorded as of end-May 2020.

“The month-on-month decrease in the GIR level reflected outflows mainly from the foreign currency withdrawals of the national government from its deposits with the BSP to pay its foreign currency debt obligations and various expenditures,” the central bank said in a statement on Friday.

This was partially offset by inflows from the BSP’s income from investments abroad and its foreign exchange operation. Higher gold prices in the international market also boosted the valuation of BSP’s gold holdings.

ING Bank-NV Manila Senior Economist Nicholas Antonio T. Mapa said the dip in the country’s dollar reserves also reflected outflows in the local stock market during the month.

“The buffer stock of foreign currency of the BSP dipped slightly in May as the currency weathered a depreciation spell linked to heavy foreign selling in the local equity market,” Mr. Mapa said in a note.

An ample level of foreign exchange buffers safeguards an economy from market volatility and ensures the country is capable of paying its debts in the event of an economic downturn.

The BSP’s reserves buildup follows the trend of other Asian central banks that have learned to boost their reserves after the Asian Financial Crisis.

“Malaysia, Thailand, Indonesia and the Philippines not only rebuilt their reserves but even erected great walls of foreign currency to ensure that currency runs, and the potential destabilizing episodes of the past would never happen again,” Mr. Mapa said.

At its end-May level, the Philippine dollar reserves are enough to cover 12.2 months’ worth of imports of goods and payments of services and primary income.

It was also equivalent to about 7.4 times the country’s short-term external debt based on original maturity and 5.1 times based on residual maturity.

Foreign currency deposits in May plunged by 53.7% to $2.393 billion from $5.173 billion in April and was also lower by 13% than the $2.744 billion a year earlier.

Meanwhile, foreign investments increased by 1.59% to $92.64 billion in May, from $91.188 billion the previous month and by 14.8% than the $80.676 billion in May 2020.

The BSP’s gold holdings were valued at $9.907 billion, 6.41% up from the $9.31 billion in April and 23.6% higher than the $8.015 billion a year ago.

Reserve position in the International Monetary Fund (IMF) also picked up by 0.5% to $807.9 million from $803.8 million a month ago and by 19.3% from the $677.2 million logged last year.

Special drawing rights – or the amount that the country can tap from the IMF – stood at $1.229 billion for the second straight month. It rose by 4.6% from the $1.174 billion in May 2020.

The BSP projects the GIR to reach $114 billion this year. The country’s reserves reached a record high of $110.117 billion as of end-December 2020. — Luz Wendy T. Noble

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