China forex reserves fall almost $100B in January

BEIJING, China -- China’s foreign exchange reserves have fallen to their lowest level in more than three years, the central bank said Sunday, as Beijing sells dollars to stop the yuan from depreciating further.

The world’s largest currency hoard shrank by $99.5 billion in January to some $3.2 trillion, the People’s Bank of China said on its website, the lowest since May 2012.

Worries about China's economy have pushed the yuan to a five-year low. The country saw its first-ever annual decline in foreign exchange reserves last year as Beijing tried to prevent a more drastic devaluation.

The PBoC is selling dollars to buy yuan amid a capital flight spurred by the slowing growth in the world's second largest economy.

But some analysts predict a more drastic weakening of the yuan this year and question China's ability to continue rapidly shedding the reserves.

"While the remaining reserves represent a substantial war chest, the rapid pace of depletion in recent months is simply unsustainable," IHS Global Insight economist Rajiv Biswas told Bloomberg News.

Outflows increased "as expectations mount that the PBoC will eventually be forced to capitulate once its reserves are sufficiently depleted," he added.

George Magnus, economic commentator and associate at Oxford University's China Centre, wrote on Twitter: "China's fx reserves fell another $100bn ... clearly this can't go on for long."

The pace of decline in the reserves in January was slower than December, which at some $108 billion was the largest monthly drop on record.

China has also tightened some capital controls to try to curb outflows.

"The smaller decline in the reserves suggests that some capital outflow restrictions imposed in January worked," Shen Jianguang, chief Asia economist at Mizuho Securities, wrote in a note.

The drop in February will be much smaller, he added.

China has set its growth target for this year at between 6.5-7 percent, the top economic planner said Wednesday, an acknowledgement that expansion -- already at its slowest pace in 25 years -- will continue to weaken.

Global investors are closely watching the slowdown in the world's second largest economy, which has created turbulence in world markets.

source: interaksyon.com

End-Sept forex reserves enough to pay for a year's worth of imports

MANILA - The Philippines' foreign exchange reserves grew last month, allowing the country to pay for nearly a year's worth of imported goods and services, the Bangko Sentral ng Pilipinas (BSP) said today.

In a statement, the BSP said the country's gross international reserves (GIR) climbed to $83 billion at end-September from $82.9 billion at end-August. Compared with a year ago, the end-September GIR was $1 billion higher.

Alternatively, the country's end-September GIR would allow it to pay 8.7 times over its short-term foreign debt based on original maturity, or 5.7 times over the same obligations based on residual maturity. Residual maturity includes debt payments on long-term obligations falling due within the next 12 months.

An ample GIR helps prop up the peso and keep domestic inflation at bay. Inflation averaged 2.8 percent in the first nine months of the year, or well below the lower-end of the BSP's full-year target range of 3-5 percent.

source: interaksyon.com

Brazil central bank launches $60 billion currency intervention

SAO PAOLO - Brazil's central bank announced a currency-intervention program on Thursday that will provide $60 billion worth of cash and insurance to the foreign-exchange market by year-end, a move aimed at bolstering the country's currency, the real, as it slips to near five-year lows against the dollar.

The bank said in a statement it will sell, on Mondays through Thursdays, $500 million worth of currency swaps, derivative contracts designed to provide investors with insurance against a weaker real. On Fridays, it will offer $1 billion on the spot market through repurchase agreements.

Both are designed to prevent companies and individuals with dollar obligations from scrambling to the market at the same time, afraid that waiting will force them to pay more to buy dollars. When that happens, the real tends to weaken further and faster.

"This shows the firm determination of monetary authorities to keep the exchange rate from slipping further," said Andre Perfeito, chief economist with Gradual Investments in São Paulo.

The program starts on Friday and runs until December, the central bank said, adding it may announce additional auctions if it sees fit.

The move comes as the government seeks ways to control inflation and keep the real from sliding while at the same time trying to kick-start an economy that has stagnated despite a rapid expansion of credit. While a weaker real can help Brazil's export of commodities and manufactured goods, it makes raw materials and other imports more expensive, helping drive inflation higher.

Brazil cut its outlook for gross domestic product (GDP) growth to 2.5 percent from 3 percent in 2013 and to 4 percent from 4.5 percent for 2014, Finance Minister Guido Mantega said in an interview with Brazil's Globo Television Network late on Thursday.

For Perfeito, the move signals the central bank's intention to limit interest rate hikes. In addition to controlling inflation, higher rates would attract investment to Brazil, helping the real firm against the dollar. At the same time higher rates could also slow growth by making borrowing more expensive.

"I think that this is an effort to adjust expectations a bit because $60 billion is a lot," Perfeito said. "This kind of attitude just before a Copom meeting shows that exchange rate controls won't be carried out only through monetary policy."

The bank's Copom monetary policy committee, which sets Brazil's benchmark rate, meets on August 28.

Interest-rate futures contracts suggest that there is a 76 percent chance that the central bank will raise the benchmark Selic target rate half a percentage point to 9 percent and a 24 percent chance of raising it 1.25 percentage points to 9.25 percent, according to Thomson Reuters data.

The real's weakening and the Copom meeting come as the United States' central banking authority, the Federal Reserve, is moving closer to ending a bond-buying program that has injected billions into the U.S. economy driving down interest rates.

As a result investors have been searching for higher-yielding, emerging market securities.

With the end of the Fed's "quantitative easing" program expected soon, capital flows have flowed out of emerging markets such as Brazil and back to the United States and other developed countries, helping to weaken the real.

"Today, the big problem is there is a structural change (in the world economy)," said Eduardo Velho, chief economist with Miami-based investment bank INVX Global Partners LLC, in São Paulo. "The central bank's move is an important measure to reduce volatility and slow the pressure on the exchange rate. I see this as positive."

On Thursday Brazil's real firmed 0.1 percent to 2.4305 reais to the dollar.

source: interaksyon.com

Forex reserves resumed climb in July, BSP says

MANILA - The Philippines' foreign exchange reserves likely resumed their increase this month with the appreciation of the US dollar, Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco Jr. said today.

“It’s because of the foreign exchange operations,” Tetangco said, adding that the appreciation of the US dollar against other currencies such as the Japanese yen and euro also supported the rise in the Philippines' gross international reserves (GIR). The country's hoard of US dollars accounts for 60 percent of its foreign exchange reserves.

“It could to the extent that you have non-dollar reserves – such as yen and euro. If the value of US dollar went up against these currencies, it would have an effect in the dollar value of the GIR but it would be small,” Tetangco said.

He said the BSP would continue to look for opportunities to diversify its reserves, adding that the Chinese yuan can become a candidate if it becomes a convertible currency.

“There are certain criteria for a currency to be part of reserve. This is based on the International Monetary Fund (IMF) definition of international reserve, which is that the currency should be convertible,” Tetangco said.

The Philippines' GIR stood at $81.6 billion at end-June, or $0.4 billion lower than the $82 billion at end-May. At this level, reserves remain adequate to cover 11.8 months worth of imports of goods and payments of services and income.



Alternatively, the reserves would allow the country to pay 8.3 times over its short-term external debt based on original maturity and six times based on residual maturity, which includes portions of the principal maturing in the next 12 months.

The slight decline in reserves last June was due mainly to revaluation adjustments on the BSP’s gold holdings arising from the decrease in the price of gold in the international market. Also pulling down GIR were payments for maturing foreign exchange obligations of the national government.

The BSP forecast reserves hitting $86 billion by yearend, up from last year's $83.8 billion. An ample GIR helps prop up the peso and keep domestic inflation at bay.

The country's economic managers last week revised their exchange rate forecast to a range of P41-43 for every dollar, lower than their previous estimate of P43-45. The peso yesterday settled at 43.23 against the greenback.

Inflation has averaged 2.9 percent in the first six months of the year, or below the lower end of the BSP's full-year target range of 3-5 percent.

source: interaksyon.com

Philippines' forex surplus up a third at end-May

MANILA - The Philippines' balance of payments (BOP) surplus in the first five months of the year went up by more than a third from a year ago, the Bangko Sentral ng Pilipinas said on Wednesday.

Data from the BSP showed that the country's foreign-exchange surplus at end-May went up by 44.7 percent to $1.809 billion from $1.302 billion last year.

In May however, the surplus of $75 million was $63 million lower than last year's $138 million.

The BOP summarizes the country's economic transactions with the rest of the world. A surplus means the country earned more dollars than it paid for overseas transactions.

The BSP earlier reported that the country suffered net outflows of $641 million worth of foreign portfolio investments in May, a reversal of the net inflows of $1.1 billion in April and $106 million in May of last year.

The BSP forecast the country's external payments position to moderate to $3 billion by yearend on expectations of a 12 percent year-on-year increase in imports.

Sustained BOP surpluses help build up the country's gross international reserves (GIR), an ample supply of which helps prop up the peso and keeps domestic inflation at bay.

The country's dollar reserves slipped to $82.9 billion last month from $83.2 billion in April because of the drop in the price of gold in the international market, as well as payment of the country's foreign-currency debts.

source: interaksyon.com

Drop in price of gold pulls down forex reserves in May

MANILA - The drop in the price of gold in the international market, as well as payment of the country's foreign-currency debts reduced the country's foreign exchange reserves last month, the Bangko Sentral ng Pilipinas (BSP) said today.

In a statement, the BSP said the country's gross international reserves (GIR) slipped to $82.9 billion at end-May from $83.2 billion at end-April.

BSP Governor Amando M. Tetangco Jr. blamed the drop on lower gold prices, which pulled down the value of the central bank's holdings of the precious commodity.

Also responsible for the decline in the GIR were the government's payments of some of its foreign-currency debt, thus reducing the country's forex cache.

Despite the lower GIR, the amount available would still be enough to pay for 11.7 months worth of imported goods and services. Alternatively, the outstanding amount allows the government to pay 9.8 times over the country's short-term debt based on original maturity, or 6.6 times over based on residual maturity.

Calculating short-term debt based on original maturity includes liabilities maturing in one year or less plus portions of long-term obligations that fall due within the next 12 months.

Ample GIR helps prop up the peso and keep domestic inflation at bay. Inflation in the first 5 months of the year averaged three percent, or at the lower end of the BSP target range for this year.

source: interaksyon.com

Forex rate climbs to P41:$1

MANILA - The peso-dollar exchange rate climbed to the P41:$1 level amid demand for the greenback among importers.

At the Philippine Dealing System, the peso traded between 40.900 and 41.040 for every dollar, before closing at 41.020, weaker than Tuesday's 40.955.

Trading volume jumped to $810.6 million from the previous $493 million.

Metropolitan Bank and Trust Co said the peso-dollar pair traded within a "very narrow" range as the Bangko Sentral ng Pilipinas continued to buy dollars.

Metrobank said negative swap points did not stop sellers on Tuesday and a "last-minute" buying from the BSP took offers to P40.960 highs.

Trading on Wednesday was dictated by corporate demand, with most players becoming short of dollars. A local currency trader said there was strong demand from importers, adding that this may persist until next week.

The peso-dollar pair is expected to trade within a range of 40.90-41.10 against the dollar in the coming sessions.

source: interaksyon.com

End-September forex reserves climb to $81.9-B

MANILA - The country's foreign exchange reserves rose to $81.9 billion in the first nine months of the year, the Bangko Sentral ng Pilipinas said on Friday.

In a statement, the BSP said the country's gross international reserves at end-September climbed $1.2 billion from the $80.7 billion in the first eight months of the year.

At the end-September level, the GIR could cover 11.8 months of imports of goods and payments for services and income.

Alternatively, the nine-month reserves could allow the country to pay 11.7 times over its short-term external debt based on original maturity, and 6.5 times over if based on residual maturity. Residual maturity incorporates principal payment of medium- to long-term debt that is due in the next 12 months.

The BSP ascribed the buildup in the country's reserves to income from its forex operations and investments abroad, as well as from revaluation gains on the central bank's gold holdings.

source: interaksyon.com

BSP to revise upwards forex reserves forecast

MANILA - The Bangko Sentral ng Pilipinas will revise upwards this year's forecast for the country's gross international reserves.

On the sidelines of the Philippine Economic Briefing, BSP Governor Amando M. Tetangco Jr. said the revision forms part of the central bank's review of its balance of payments assumptions.

The country's foreign exchange reserves climbed to $80.8 billion in the first eight months of the year, well above the BSP's full-year forecast of $78 billion.


At end-July, the Philippines' BOP surplus already hit $4.498 billion, higher than the full-year forecast of $2.6 billion.

The review of the central bank's BOP assumptions comes as the Philippines enjoys huge inflows of foreign portfolio investment - so-called "hot money" - brought about by the weakness in advanced economies, leading investors to search for yields higher than are available in those markets.

The BSP registered hot money inflows of $1.3 billion last month, 41.8 percent lower than in July and 6.6 below that in August of last year. Portfolio outflows reached $868 million, resulting in net inflows of $387 million last month, 60 percent lower than the $963 million in July and 1.7 percent below the $394 million in August 2011.

The strong foreign fund inflows has caused the peso to hit four-year highs against the US dollar.

With a report from Krista Angela M. Montealegre

source: interaksyon.com

Foreign exchange reserves climb to $80.8-B in August

MANILA - The country's foreign exchange reserves climbed to $80.8 billion in the first eight months of the year, well above the Bangko Sentral ng Pilipinas' full-year forecast of $78 billion.

In a statement, the BSP on Friday said the country's gross international reserves increased by $1 billion from the end-July level of $79.8 billion.

At the end-August level, the GIR can cover 11.9 months of imports of goods and payments of services and income.

Alternatively, the eight-month forex hoard allows the country to settle 10.9 times over its external debt based on original maturity, and 6.6 times its obligations based on residual maturity. Residual maturity includes portions of long-term debt that are due within a year.

The BSP ascribed the country's strong GIR position to income from the central bank's forex operations and investments abroad, foreign currency deposits of the national government and revaluation gains of gold holdings.

Excluding short-term liabilities, the country's net international reserves likewise increased $1 billion to $80.8 billion at end-August.

Ample forex reserves help prop up the peso and keep domestic inflation at bay. Inflation averaged 3.2 percent in the first seven months of the year, or at the low end of the BSP's full-year target range of 3-5 percent.

The peso meanwhile has scaled to four-year highs on the strength of strong foreign portfolio investments. Data from the BSP showed that net inflows of "hot money" at end-July rose by more than three-fold to $963 million from a year ago.

On Thursday, BSP Governor Amando Tetangco Jr. said the central bank was keeping tabs of domestic money supply growth, which rose 7.1 percent in June largely because of strong foreign capital inflows. Any expansion in domestic liquidity that is faster than demand tends to bid up inflation.

The BSP has brought its policy rates to record lows of 3.75 percent and 5.75 percent for the overnight borrowing and lending windows, respectively. Its policy-making Monetary Board is set to meet next week to decide on any further adjustment.

DBS earlier said it expects the BSP to cut policy rates by another 25 basis points before the end of the year given benign inflation and economic weakness brought about by the Euro zone debt crisis and the US economy's tentative recovery.

source: interaksyon.com

Metrobank to recast forex forecast on peso's strength

MANILA - Metropolitan Bank and Trust Co. on Thursday said it may have to go back to the drawing board for a likely cut in its peso-dollar exchange rate given the local currency’s "surprise" performance last Tuesday.

In an interview, Idelmarc C. Bautista, Metrobank head of research, said the peso may strengthen beyond its forecast of 41.75 to the dollar by yearend given current development in the global economy.

The Semiconductors and Electronics Industries in the Philippines recently cut its export growth forecast from a range of 10-15 percent this year to five to seven percent because of slowing demand from the US, China and Japan. Electronics make up about half of the Philippines' total exports, so this gloomy outlook could drag down the country's total shipments of products abroad.

Bautista said this means imports would also weaken, slowing down dollar outflows, which also boost the peso.

He said imports peak during the third quarter, when the peso dips due to dollar withdrawals by importers. So, the peso’s current strength therefore is unusual.

The Bangko Sentral ng Pilipinas on Wednesday said it will tweek some rules to guard against foreign exchange speculation amid robust foreign capital inflows.

"We've always been looking at possible entry points for speculation. Because if the change is caused by fundamental factors, that is something we would allow to continue. But if the appreciation of the peso is due to speculative activity, we do not like that," BSP Governor Amando Tetangco Jr. said.

On Tuesday, the peso hit a four-year high of 41.72 to the greenback, which the BSP has attributed to the attractiveness of the country to foreign investors given the improved fiscal position and strong forex inflows as investors ditch advanced economies wallowing in debt.

Tetangco said some of the entry points for speculation are non-deliverable forwards and the BSP’s special deposit accounts. He said the NDFs as an entry point for speculators was "already established earlier."

"We have to see if additional measures are needed to make sure foreign exchange transactions are conducted basically to meet legitimate requirements," Tetangco said.

"It will be useful to disabuse the minds of foreign investors that foreign exchange transactions would result to a one-way bet in favor of the peso. Because our foreign exchange regulatory system has been liberalized and capital outflows can provide the counterweight to a sustained appreciation of the peso against the US dollar," BSP Deputy Governor Diwa Gunuigundo said.

"As the economy expands for the rest of the year, we expect the demand for imports to go up, particularly coming from the infrastructure side also from our exporters and oil companies. So that will provide some counterweight to an appreciating peso. We expect the economic growth to average between five to six percent or higher," he added.

In October 2011, the central bank increased the market risk weight of NDFs to reflect the potential systemic risk of these transactions as a result of the increased volatility in forex markets.

Banks and other companies use NDFs to hedge their dollar requirements. The holders are allowed to buy a currency at a specified exchange rate in a given time and shield importers from foreign exchange volatilities.

"However, in a situation where the market has increasingly taken a one-way view that the Philippine peso will strengthen over time, NDFs also became attractive vehicles for speculative funding flows," Tetangco said.

At that time, the net open position of NDFs carried a market risk capital charge consistent with a capital adequacy ratio of 10 percent, which the central bank hiked to a risk weight of 15 percent.

The SDA, on the other hand, is an instrument used by monetary authorities to mop up excess cash in the system, helping keep inflation at bay. These are accounts with the BSP where banks park their excess money for an interest rate of 4.5 percent, better than some government securities especially since the latter's supply is becoming more limited.
Funds parked in SDAs stood at P1.6 trillion last May.

"Banks that use dollars in SDAs in effect get paid to hold on to their dollars while waiting for the peso to weaken," Noel Reyes, who writes a stock market column for InterAksyon.com, said.

"Also note that peso interest rate is always higher than dollar rate due to differences in risk profiles. It's dishonest for banks to arbitage on that," he added.

The BSP may use administrative measures when it comes to the identification of these funds by requiring some sort of certification from financial institutions that these are purely domestic money.

The central bank can monitor foreign money if offshore investors use custodian banks operating in the Philippines and these can go to the stock market, used to buy government securities, bank deposits or unit investment trust funds.

But if these offshore investors pull out from the Philippine stock market or liquidate their government securities and put these in the trust departments of local banks, which in turn place these funds in SDAs, then monetary authorities would not have any way of knowing these had taken place.

On the flipside, most foreign funds would rather go for government securities since the SDAs have "pretty stiff" requirements compared with Treasury bonds and bills, Metrobank’s Bautista said.

On top of that, funds in SDAs cannot be withdrawn that easily unlike the government debt papers that holders can immediately liquidate upon maturity. This makes money in SDAs more long-term in nature than "hot money."

source: interaksyon.com