Philippines’ dollar reserves fall below BSP forecast in 2021

• Jan 14, 2022

MANILA, Philippines —  Dollar reserves continued their climb in December as the national government’s foreign currency deposits pushed levels up, but the year-end figure missed the Bangko Sentral ng Pilipinas’ projection.

What’s new

Gross international reserves amounted to $108.9 billion as of December 2021, inching up 1.1% month-on-month, the central bank reported on Thursday.

As it is, the final GIR level last year hit below the 2020 finish of $110.1 billion, which was a record high.

Why this matters

Foreign reserves are built mostly of investments in gold and foreign currency that could protect the Philippine economy from external shocks. The BSP’s role as a lender of last resort is to manage these buffers.

In 2021, the BSP projected GIR to hit a record $114 billion, which was already revised down on expectations of higher withdrawals of the government to pay for its maturing foreign debts and as imports recover.

What the BSP says

In a statement, the BSP attributed the GIR increase last month to “the National Government’s net foreign currency deposits with the BSP and upward adjustment in the value of the BSP’s gold holdings due to the increase in the price of gold in the international market.”

What analysts say

Jun Neri, lead economist at Bank of the Philippine Islands, said the month-on-month GIR increase in December was likely due to “seasonal remittances” from migrant Filipinos who sent money to their families here for the Christmas shopping season. Hefty imports, meanwhile, caused the smaller GIR year-on-year.

“We expect another hefty performance in PHL imports in 2022 which will likely lead to further GIR depletion moreso that the BSP has hinted on intervening in the spot USD-PHP market to temper depreciation pressure while keeping its negative interest rate policy in place,” Neri said in a Viber message.

For Nicholas Mapa, senior economist at ING Bank in Manila, the GIR has remained “at relatively healthy levels both from a current and historical perspective.”

“Despite stark depreciation pressure on the local currency throughout the year, the central bank has managed to maintain a very decent stash of ammunition to stave off any speculative attack on the currency,” Mapa said in a commentary.