By Doris DumlaoInquirer
09/08/2007
MANILA, Philippines -- The Philippines’ foreign exchange reserves breached the $30-billion mark in August despite the global financial volatility that tempered the central bank’s dollar purchases during the month.
Governor Amando Tetangco Jr. of the central bank, Bangko Sentral ng Pilipinas (BSP), reported that the country’s gross international reserves surged to $30.3 billion last month, or $2.3 billion higher than the level as of end-July.
The latest figure has exceeded the BSP’s revised yearend target of $30 billion for the gross international reserves (GIR), which was announced only on Friday last week.
“Sustained foreign exchange inflows enabled the BSP to build up its reserves level while at the same time service its debt and those of the national government’s,” Tetangco said.
“Receipts of income from investment abroad also contributed to the increase in the GIR level,” he said.
The current GIR level can cover 5.6 months’ worth of imports of goods and payments of services and income, and is equivalent to 5.9 times the country’s short-term external debt, the BSP said.
The GIR rose last month despite net outflows of foreign investments in stocks and bonds. The renewed aversion to assets from emerging markets like the Philippines was triggered by concerns over rising delinquencies in the US subprime, or high-risk, home loan market.
Subprime mortgages are loans made to borrowers with imperfect or limited credit histories and little equity. The ripples have spread across the globe as western banks took big hits from structured financial products with underlying assets invested in these subprime mortgages.
“Due to the risk aversion factor, the BSP eased its dollar-for-peso swap activity in the onshore swap market to ensure adequate bank liquidity,” Citigroup economist Jun Trinidad said in an Aug. 20 market review.
Trinidad said there were less dollar forwards being sold by the BSP in August, implying the following:
• lower spot market dollar purchases and thus less need to worry about excessive money supply growth, and
• preference not to roll over maturing dollar forward contracts.
The country’s strong foreign reserve buildup has been supported by remittances from overseas Filipino workers, foreign direct investment and portfolio investments. These inflows allowed the BSP to become a heavy buyer of dollars on the currency spot market Philippine Dealing System before the global volatility seen in August.
In previous months, the BSP intensified the use of foreign currency swaps to mop up excessive foreign inflows. Based on the latest BSP data, its outstanding currency swaps slightly fell to $9.62 billion at end-June from $10.06 billion at end-May.
“With the peso falling against the US dollar as risk aversion persists alongside expectations of net portfolio outflows, BSP was probably in a dollar net selling mode -- the flipside of which became less urgency to sterilize liquidity via the swaps,” Trinidad said.
Governor Amando Tetangco Jr. of the central bank, Bangko Sentral ng Pilipinas (BSP), reported that the country’s gross international reserves surged to $30.3 billion last month, or $2.3 billion higher than the level as of end-July.
The latest figure has exceeded the BSP’s revised yearend target of $30 billion for the gross international reserves (GIR), which was announced only on Friday last week.
“Sustained foreign exchange inflows enabled the BSP to build up its reserves level while at the same time service its debt and those of the national government’s,” Tetangco said.
“Receipts of income from investment abroad also contributed to the increase in the GIR level,” he said.
The current GIR level can cover 5.6 months’ worth of imports of goods and payments of services and income, and is equivalent to 5.9 times the country’s short-term external debt, the BSP said.
The GIR rose last month despite net outflows of foreign investments in stocks and bonds. The renewed aversion to assets from emerging markets like the Philippines was triggered by concerns over rising delinquencies in the US subprime, or high-risk, home loan market.
Subprime mortgages are loans made to borrowers with imperfect or limited credit histories and little equity. The ripples have spread across the globe as western banks took big hits from structured financial products with underlying assets invested in these subprime mortgages.
“Due to the risk aversion factor, the BSP eased its dollar-for-peso swap activity in the onshore swap market to ensure adequate bank liquidity,” Citigroup economist Jun Trinidad said in an Aug. 20 market review.
Trinidad said there were less dollar forwards being sold by the BSP in August, implying the following:
• lower spot market dollar purchases and thus less need to worry about excessive money supply growth, and
• preference not to roll over maturing dollar forward contracts.
The country’s strong foreign reserve buildup has been supported by remittances from overseas Filipino workers, foreign direct investment and portfolio investments. These inflows allowed the BSP to become a heavy buyer of dollars on the currency spot market Philippine Dealing System before the global volatility seen in August.
In previous months, the BSP intensified the use of foreign currency swaps to mop up excessive foreign inflows. Based on the latest BSP data, its outstanding currency swaps slightly fell to $9.62 billion at end-June from $10.06 billion at end-May.
“With the peso falling against the US dollar as risk aversion persists alongside expectations of net portfolio outflows, BSP was probably in a dollar net selling mode -- the flipside of which became less urgency to sterilize liquidity via the swaps,” Trinidad said.
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