BSP chief: Dollar reserves still 'adequate' despite recent drop

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Metro Manila (CNN Philippines, August 18) — The Philippine central bank chief said he is not concerned over the drop in foreign exchange reserves—still finding them enough despite moves to support the peso against a stronger dollar.

"I suppose without our intervention, the peso would have depreciated even more. There was tremendous increase in need for dollars for paying for imports. Nonetheless, I'm not worried," Bangko Sentral ng Pilipinas (BSP) Governor Felipe Medalla told a virtual briefing on the recent interest rate hike.

"I think our reserves remain adequate...say, in comparison to Thailand which relied almost completely on selling foreign exchange, we increased our policy rates a lot more," Medalla added, citing Manila's cumulative 175-basis point hike compared to Bangkok's 25-bp increase.

READ: BSP hikes borrowing rate to 3.75%, sees higher inflation in 2022 before slowdown

Gross international reserves (GIR) act as backup funds for emergencies like the peso's rapid plunge. The local currency weakened above the ₱56-per-dollar level in July, but eventually returned to the ₱55 mark before the month ended. Some economists attributed this to the BSP's off-cycle rate hike of 75 bp or three-quarters of a percentage point. 

GIR sank for the fifth straight month in July to $98.8 billion—the lowest since September 2020. This is equivalent to 8.3 months' worth of imports of goods and payments of services and primary income, the central bank said earlier this month.

July's level is "also about 6.9 times the country's short-term external debt based on original maturity and 4.5 times based on residual maturity," the BSP noted.

The GIR level is considered adequate if it allows at least 100% cover for the payment of public and private foreign liabilities due within the immediate twelve-month period.

Medalla said reserves of other countries also dropped, which he explained could be driven by central banks' normal fiscal operations or market interventions as the United States Federal Reserve's aggressive tightening weighed on other local currencies.

The governor added that they are also confident with the country's economic recovery, which he described as "nascent and sustainable."

While growth slowed to 7.4% in the second quarter, the economy still expanded slightly above target in the first half of 2022 at 7.8%.

"It's a combination of many things. Some of our responses are policy rates, some of our responses are of FX intervention. And then of course, what we hope for is the national government on its side will do non-monetary policies that improve supply," Medalla said.