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

Forex rate touches P40:$1 level

The peso-US dollar rate has breached the psychological barrier of P41:$1 to reach a level not seen since February 2008, with the local currency's appreciation eating into the buying power of the overseas Filipino worker's beneficiaries back home.

At the Philippine Dealing System, the local currency firmed up to 40.87 against the greenback, from Monday's close at 41. The peso-dollar pair traded between 40.85-41, with total trades rising to $899.515 million from the previous day's $655.094 million.

A trader said the peso-dollar pair tested the P40.80:$1 level on Tuesday in the wake of the Greece bailout deal forged between European finance ministers and the International Monetary Fund early Tuesday.

Metrobank said the Bangko Sentral ng Pilipinas was in the market, providing strong support for the greenback, with the peso-dollar pair trading within a two-centavo range for most of the day.

Other traders said the peso could strengthen to as high as P38.50:$1 in one or two months as foreign capital flows into the Philippines unabated. This is several centavos shy of the P37.84:$1 record seen in May 1999.

“It looks possible that the appreciating trend will continue. The currency market could be vulnerable in one to two months,” Jonas Ravela, market strategist at Banco de Oro said.

Data from the BSP showed that the average OFW sends home $300 a month.

With the exchange rate averaging P41.149:$1 - or down from P43.619:$1 at the start of the year - the P13,085.7 equivalent in January likewise has gone down to P12,344.7 in recent weeks, or an erosion in the order of P741.

In an email, BSP Governor Amando M. Tetangco Jr. admitted the peso has appreciated faster than the Thai baht or the Indonesia rupiah, but said the 6 percent volatility rate for the local currency “has been maintained at the middle of the range.”

“There are several factors that have caused the peso appreciation, including the seasonal remittances and positive news out of the EU on the Greek deal. We remain watchful of market conduct,” he said.

source: interaksyon.com