GIORGIO TROVATO-UNSPLASH

By Keisha B. Ta-asan, Reporter

AFTER two straight months of decline, the Philippines saw its dollar reserves rise to a six-month high as of end-October, thanks to the National Government’s (NG) retail dollar bond issuance.

Gross international reserves (GIR) reached $101.09 billion as of end-October, up by 3% from $98.12 billion as of end-September, based on preliminary data from the Bangko Sentral ng Pilipinas (BSP) released on Tuesday evening.

This was also 7.5% higher than the dollar reserves of $94.03 billion as of end-October 2022. The GIR was the highest in six months, or since the $101.76 billion in April.

“The month-on-month increase in the GIR level reflected mainly the National Government’s net foreign currency deposits with the BSP, which include proceeds from its issuance of Retail Onshore Dollar Bonds 2 (RDB 2),” the BSP said.

The NG raised $1.26 billion from the first retail dollar bond offering under the Marcos administration. The five-and-a-half-year bonds fetched a coupon rate of 5.75% and were awarded at rates ranging from 5% to 5.75%, bringing the average to 5.509%

“The dollar-denominated bonds, successfully awarded, was likely the biggest contributor to the latest international reserves figure,” China Banking Corp. Chief Economist Domini S. Velasquez said in a Viber message.

Ample foreign exchange buffers protect the country from market volatility and ensure that it is capable of paying its debts in the event of an economic downturn.

The level of dollar reserves as of end-October is enough to cover about 5.9 times the country’s short-term external debt based on original maturity and 3.7 times based on residual ma turity.

It is also equivalent to 7.5 months’ worth of imports of goods and payments of services and primary income.

The central bank also attributed the increase in dollar reserves to the higher value of the BSP’s gold holdings as prices of gold in the international market went up, and the BSP’s foreign exchange operations and income from investments abroad.

Based on BSP data, the value of the central bank’s gold holdings rose by 7.9% to $10.57 billion as of end-October from $9.79 billion as of end-September. It also climbed by 27.8% from $8.27 billion a year ago.

The level of foreign exchange reserves expanded by 47.2% to $1.23 billion as of end-October from $834.4 million as of end-September. However, it was 13.9% lower than $1.43 billion seen last year.

The BSP’s foreign investments stood at $84.79 billion as of end-October, 2.2% up from $82.99 billion in the prior month and 6.4% higher than $79.96 billion in the same month in 2022.

According to the BSP, net international reserves rose by 2.3% to $100.4 billion as of end-October 2023 from $98.1 billion as of end-September.

Net international reserves refer to the difference between the BSP’s reserve assets (GIR) and reserve liabilities, including short-term foreign debt, and credit and loans from the International Monetary Fund (IMF).

The BSP’s reserve assets also include foreign investments, foreign exchange, reserve position in the IMF and special drawing rights (SDR).

Reserves with the IMF slipped by 0.1% to $777.4 million as of end-October from $778.1 million in the previous month but rose by 5.2% from $739.1 million a year ago.

SDRs — or the amount which the Philippines can tap from the IMF’s reserve currency basket — was unchanged at $3.725 billion as of end-October from the previous month but went up 3% from $3.62 billion a year ago.

“Moving forward, GIR will be helped by an appreciating peso in the fourth quarter and the dovish statement from the Fed where markets are seeing an end to its hiking cycle already (less pressure on the peso),” Ms. Velasquez said.

The US Federal Reserve has kept its own key policy rate unchanged at 5.25-5.5%. The Fed has hiked policy rates by 525 basis points (bps) from March 2022 to July 2023.

Fed officials have said that it is unclear if overall financial conditions are restrictive enough to tame inflation, but further tightening may begin to weigh on the economy in a significant way.   

The Philippines’ Monetary Board raised borrowing costs by 25 bps in an off-cycle move in October. This brought the key interest rate to 6.5%, the highest in 16 years. The BSP hiked rates by 450 bps since May 2022. 

The BSP is expecting a GIR of $99.5 billion for this year and $102 billion for 2024.

Neil Banzuelo