Coming up short; GIR drops below BSP forecast

THE country’s gross international reserves (GIR) stood at $108.891 billion as of end-December or 1.08 percent higher than the $107.723 billion in end-November.

But it was lower by 1.11 percent from the record $110.117 billion level reached at end-2020. This despite the higher valuation of the gold reserves, said Reuters.

This is below the projection of the Bangko Sentral ng Pilipinas of $111 billion by end-2021.

“The month-on-month increase in the GIR level reflected mainly the National Government’s net foreign currency deposits with the BSP and upward adjustment in the value of the BSP’s gold holdings due to the increase in the price of gold in the international market,” the BSP said in a statement.

At its end-December level, the GIR is enough to cover 10.3 months’ worth of imports of goods and payments of services and primary income.

It is also equivalent to about 8.8 times the country’s short-term external debt based on original maturity and 5.9 times based on residual maturity.

Crucial component

The GIR is a crucial component of the economy as it is often used to manage the country’s foreign exchange rate against excess volatility.

The country’s GIR consisted predominantly of foreign investments, which hit $91.74 billion in December—up from $91.5 billion in November.

The BSP said the latest GIR level represents a “more than adequate external liquidity buffer” equivalent to 10.3 months’ worth of imports of goods and payments of services and primary income.

It is also about 8.8 times the country’s short-term external debt based on original maturity and 5.9 times based on residual maturity.

“The month-on-month increase in the GIR level reflected mainly the national government’s [NG] net foreign currency deposits with the BSP and upward adjustment in the value of the BSP’s gold holdings due to the increase in the price of gold in the international market,” the BSP said.

Broken down, the country’s gold holdings grew from $9 billion in November to $9.3 billion in December.

Seasonal rise in remittances

The seasonal increase in remittances sent by overseas Filipinos during the holiday season drove the GIR to its highest level in 12 months or since December 2020, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort told BusinessWorld.

The end-December GIR level also reflects the 3% increase in world gold prices during the month, he added.

“Despite stark depreciation pressure on the local currency throughout the year, the central bank has managed to maintain a very decent stash of ammunition to stave off any speculative attack on the currency,” ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa said.

The peso closed at P50.999 a dollar on Dec. 31, 2021, weaker by 6.2 percent from its P48.023 finish on Dec. 29, 2020.

Having an ample level of foreign exchange buffers safeguards an economy from market volatility and is an assurance of the country’s capability for debt repayment in the event of an economic downturn.

Lower GIR expected

The BSP earlier said that they expect lower GIR than previously anticipated amid the “use of reserves to pay foreign currency obligations and various expenditures.”

As of end-December, reserves in the form of foreign investments edged up 0.26% to $91.748 billion from $91.505 billion as of end-November. This was 2% down from the $93.644 billion seen a year ago.

The country’s gold reserves were valued at $9.332 billion as of end-2021, higher by 3.7 percent than the $9 billion a month earlier but falling by 19.6 percent from the $11.605 billion as of end-2020.

The Philippines’ reserve position in the International Monetary Fund (IMF) increased by 2.5 percent month on month to $801.6 million but fell by 1.4 percent from the $813.1 million from a year ago.

SDRs from IMF

Special drawing rights held by the Philippines — or the amount the country can tap from the IMF — stood at $3.942 billion for the third straight month and jumped more than three times (219 percent) the $1.232 billion seen as of end-2020.

Meanwhile, foreign currency deposits stood at $3.066 billion, increasing 23% month on month and by 8.7 percent year on year.

Economists’ views

Asian Institute of Management economist John Paolo R. Rivera said any restriction measures would impact the country’s foreign exchange buffers.

“GIR tends to improve when restrictions are stricter because we do not get to unload our foreign currency reserves as our economy has lower domestic demand and is more reliant on domestic production,” Rivera said.

ING’s Mapa said developments related to tightening of the monetary policy in the US could affect GIR developments this year. Federal Reserve officials have already signaled possible rate hikes this year to curb elevated inflation in the United States.

BSP intervenes to limit peso volatility

BSP said it intervenes in the foreign-exchange market to limit volatility in the peso, Bloomberg said.

“Now, that it’s more than 51 — approaching 51.50 — we’re participating a little bit,” Diokno said in an interview on Tuesday, referring to the number of pesos per dollar. “That’s only because we just want to temper excess volatility.”

Emerging-market currencies are under pressure as the risk of more aggressive policy tightening by the Federal Reserve boosts US yields and lifts the dollar. The peso slid to 51.45 on Monday, the lowest in almost two years, and traded around 51.15 on Tuesday.

The BSP said it is “very comfortable” with the peso at a range of 48 to 53 per dollar. “When the currency was approaching 48 to 49 per dollar, the central bank was buying the greenback,” he said.

“Our policy has always been, we let the market determine the exchange and we only participate in the market to temper excess volatility,” Diokno stated.

ING Bank economist Nicholas Mapa said at this level, the Philippines’s GIR is at relatively healthy levels both from a current and historical perspective.

“Despite stark depreciation pressure on the local currency throughout the year, the Central Bank has managed to maintain a very decent stash of ammunition to stave off any speculative attack on the currency,” Mapa said.

“The advent and likely spread of [the] new Covid variant to start the year may delay somewhat the brisk pace of economic reopening witnessed to close out 2021. November trade data showed the overall balance of trade swung deep into the red [record of $4.7bn] and yet the Peso held relatively firm while GIR was only drawn down slightly,” Mapa said.

“This suggests that unlike 2021, the fate of the Peso [and the GIR] may be driven less in part by trade developments and more by external factors related to the imminent normalization of the Federal Reserve,” he added.

1 in 5 bank branches close because of COVID

A fifth of Philippine universal banks’ branches in the capital region are closed, as the fast-spreading Omicron variant caused staff shortage, Reuters quoted Diokno as saying adding that the ratio is double for smaller lenders.

“Most transactions you can do digitally, so that’s not a problem. There’s no dysfunction in the delivery of services,” with clients able to transact in other nearby branches, he said.

A surge in COVID-19 cases, which reached a daily record of 33,169 on Monday, also disrupted airlines and hospitals. Nearly three dozen Globe Telecom Inc. stores are temporarily closed, it said in a statement Tuesday, adding it was “not spared from the current challenges of rising community infections.”

Over two in five persons tested for the virus in the Philippines have it, while more than half of beds in hospitals’ intensive care units and wards in Metro Manila are occupied.

Health officials are considering cutting required quarantine and isolation, Health Undersecretary Maria Rosario Vergeire said in a briefing. While the surge in infections in the capital has yet to translate to the same spike in critical cases, it doesn’t mean hospitals aren’t burdened, she said.

Tags: #GIRrisesslightly, #belowBSPtarget, #economy