Gross international reserves hits new high of $39.319 billion

MANILA, Philippines – The country’s gross international reserves (GIR) reached a new record high of $39.319 billion in May as a result of government foreign borrowing and the increase in the price of gold, the Bangko Sentral ng Pilipinas (BSP) reported yesterday.

The latest GIR level was $3 billion higher than the previous month’s level of $39.316 billion, also a record high.

The May GIR was actually lower than the $39.5-billion level expected by the BSP but the preliminary estimates could still change when the central bank finalizes the account later this month.

At this level, BSP Governor Amando M. Tetangco Jr. said the preliminary GIR level could cover 6.3 months of imports of goods and payments of services and income.

Tetangco said the reserves were also equivalent to six times the country’s short-term external debt based on original maturity and 3.1 times based on residual maturity.

Tetangco said there were major foreign exchange inflows during the month that included revaluation gains in the BSP’s gold holdings on account of the rise in the price of gold in the international market during the month.

Tetangco said there were also foreign currency deposits by the National Government (NG), as well as income from the BSP’s investments abroad and net foreign exchange operations.

These receipts were broadly matched by payments of maturing foreign exchange obligations of the NG and the BSP, Tetangco said.

While the GIR level remained broadly steady, Tetangco said the level of net international reserves (NIR), which included revaluation of reserve assets and reserve-related liabilities, rose to $38.3 billion as of end-May 2009 from the month-ago level of $37.8 billion as a result of the BSP’s partial settlement of credits extended by foreign financial counterparties.

NIR is the difference between the BSP’s GIR and total short-term liabilities.

The BSP had expected the GIR to reach a record high of $39.5 billion in May as portfolio investments recovered slightly and triggered foreign exchange inflows.

“Foreign exchange inflows were strong in May, especially if you look at portfolio investments,” Tetangco said. “There was one week when inflows amounted to around $500 million.”

According to Tetangco, portfolio investments into stocks and bonds were up, indicating an improvement in the risk appetite of investors who have been staying away of emerging markets for nearly a year.

The recovery of the stock and bond markets, however, could just as easily be attributed to the so-called dead cat bounce phenomenon when markets crash so badly that there would be no other way but up.

These bear market rallies, however, are notoriously unsustainable and normally prelude more declines in the financial market.

Asked whether he thought this could be the case, Tetangco said much of investor sentiments would depend on whether the initial positive signs in the real economy could also be sustained.

“In a down market, you would usually see the improvement in the financial market first,” Tetangco said. “Then whether or not that can be sustained depends on whether the improvement in the real economy can be sustained also.”

But Tetangco said the BSP could not say whether the expected record high in May would be the peak or whether the reserve level could still go up even higher this year.

“We will have to see,” Tetangco said, recalling that the BSP was only expecting reserves to reach $38.5 billion this year, with the balance of payments position at $700 million. –Des Ferriols, Philippine Star