The country’s dollar cache, more known as gross international reserves or GIR, was seen exceeding the forecast level this year and likely to have totaled $79 billion in July alone.
The surge means an accumulation of some $2.7 billion more in dollar reserves in just one month, given actual reserves of only $76.28 billion at end-June.
It was driven higher not only by foreign-capital inflows attracted by the country’s consolidating macroeconomic fundamentals but also by business-process outsourcing (BPO), exports and tourism receipts, as well as by public- and private-sector loan proceeds during the period.
This large accumulation tends to boost the value of the local currency—the peso—which may hurt the country’s export sector but, at the same time, lower the cost of goods or services not locally available.
Above all, the continued accumulation of a large foreign-exchange reserves means an increased capacity to pay for foreign debts now totaling only $62.9 billion.
Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco Jr. revealed this development on Wednesday at the sidelines of a public hearing on the nation’s budget at the House of Representatives.
The forecast dollar reserves also represent an upward revision from an earlier forecast in which no more than $77.5 billion up to $78 billion was seen accumulating during the year.
“We have so much dollar resources coming out of our ears already we can afford to pay all our creditors assuming all of them demand immediate payment,” Omar Cruz, former National Treasurer who now works for BPI-Philam Life, said.
“For July, preliminary GIR should hit between $78 billion [and] $79 billion,” Tetangco said.
As a result, he added, the forecast dollar trove for this year should also be revised to a still undisclosed number as the flow of foreign exchange revs up.
But Tetangco would not say for now where the GIR would likely end up this year.
This is significant is that the local currency—the peso, already 5 percent stronger now than on the first day of January, should continue to gain value in relation to the US dollar.
It averaged 5.7 centavos higher on Wednesday to P41.776 per dollar at the local currencies market known as the Philippine Dealing and Exchange Corp. from Tuesday’s exchange rate of only P41.833 per dollar.
“The peso has appreciated by 5.1 percent and we see that the appreciation would persist,” Tetangco said, acknowledging it had been gaining strength the past many months as a “reflection of the weakness [of] other countries.”
From 1998 until 2012, the exchange rate averaged P44.77 per dollar and reached an all-time low of P56.34 and record high of P37.84 per dollar in May 1999, data from the BSP show.
In earlier interviews, Tetangco was quick to admit the BSP would not hesitate to intervene should the exchange rate prove volatile, either by gaining value too fast or losing ground too quickly.
He told reporters the external sector continues to benefit from large remittances from some 10 million overseas Filipinos, rising earnings from the business-process outsourcing (BPO) sector and from strong foreign-capital flows attracted by the country’s resilient and strong macroeconomic underpinnings.
Portfolio investments, also known as “hot” money due to its flighty nature, reflected net inflows totaling $871 million as at end-June this year, while the more permanent foreign direct investments totaled another $837 million in only the first four months.
Tetangco and six other members of the policy-making monetary board previously fine-tuned regulations to ensure against a volatile peso by excluding, for instance, the participation of foreign entities at its special deposit window and reducing the rate at which it borrows from or lends to banks.
Both measures tend to dampen the influx of foreign funds, as peso-denominated instruments would present comparably lower returns as consequence of the policy rate cuts, for instance.
Original article here: http://businessmirror.com.ph/home/top-news/30751-dollar-reserves-surpass-forecast-level