The PESO may find support even despite some volatility in the foreign exchange market as the Philippine dollar hits its highest level in a year, analysts said.
“The relatively high GIR (is seen) to provide a major barrier to the exchange rate of the peso against the US dollar, as it is basically supported by the continued growth of the country’s structured US dollar inflows especially from OFW (overseas worker), BPO (business process) revenues, tourism receipts, Corporation Commercial Investments of Foreign Economic Economics. Said Michael L. Ricafort in the email.
This came after gross international reserves (GIR) stood at a 16-month high of $112.515 billion in January, up 8.95% year-on-year from $103.271 billion last year, based on preliminary data from the Bangko Sentral ng Pilipinas (BSP).
It was the highest GIR level since the $112.707 billion recorded at the end of September 2024.
Month-on-month, it rose 1.52% from $110.833 billion in December.
Analysts attributed the rise in foreign exchange reserves to rising dollar inflows and net gains from the central bank’s foreign investment and gold.
“The jump in the GIR largely reflects the inflow of strong dollars – from foreign countries, BPOs, and remittances – and the high rates of foreign investment of the BSP and gold, which helped to push the reserves in more than a year,” said Jonathan L. Ravelas, senior consultant at Reyes Tacandong & Co., in a Viber message.
International reserves are foreign central bank assets held primarily as investments in foreign-issued securities, foreign currency and currency gold, among others.
This is supplemented by International Monetary Fund (IMF) claims in the form of fund reserves and special drawing rights (SDRs).
The BSP said the reserve level in January was sufficient to cover about 4.1 times the country’s short-term external debt based on net maturity.
It is also equivalent to 7.5 months’ worth of imports and payments for services and basic income, more than double the three-month rate.
“The latest GIR rate ensures the availability of foreign currency to meet the balance of payments needs, such as the payment of purchases and debt service, in extreme cases where there is no foreign earnings or foreign loans,” the BSP said in a statement issued late Friday.
Preliminary data from the central bank showed that its gold holdings reached $20.667 billion at the end of January, up 75.87% from the $11.751 billion seen last year. It also increased by 11.25% from $18.578 billion at the end of December.
However, the foreign investment of the central bank decreased by 0.47% annually to $ 85.966 billion in January from $ 86.368 billion last year, and by 1.11% from $ 86.926 billion in the previous month.
Meanwhile, the Philippines’ reserve position at the IMF stands at $730.2 million, up 8.77% from $671.3 million last year and 0.4% from $727.3 million last month.
SDRs – or the amount the Philippines can receive from the IMF’s reserve currency basket – were 5.66% higherer at $3.943 billion as of the end of January from $3.732 billion last year. It had not changed since December.
On the other hand, the BSP’s foreign currency holdings increased by 61.48% to $1.208 billion from $748.2 million in the previous year and by 83.34% from $659 million at the end of December.
“Since the GIR is now above the traditional adequacy metrics, it gives the BSP enough firepower to smooth volatility, stabilize markets, and prevent the peso from overvaluing even when global conditions change,” said Mr. Ravelas.
Meanwhile, John Paolo R. Rivera, senior researcher at the Philippine Institute for Development Studies, said the latest GIR rate equips the BSP with more resources to protect the peso from excessive volatility.
“Although it will not fully prevent the devaluation driven by the strength of the USD (American dollar) around the world and the sense of risk, the current level of reserve helps to strengthen the confidence of the market and allows a limited intervention to prevent unorganized currency fluctuations,” he added via Viber.
The domestic division had a weak performance at the beginning of the year as it continued to trade at a rate of P58- to P59-a-dollar. On Jan. 15, closed at P59.46 against the greenback, breaking the previous record low of P59.44 seen the day before.
On Friday, the local unit gained 10.5 cents to close at P58.585 against the dollar from its close of P58.69 on Thursday.
The BSP expects the GIR to reach $110 billion by the end of the year. – Katherine K. Chan
