MANILA, Philippines – The country’s foreign exchange reserves (GIR) would reach a record high of $39.5 billion in May as portfolio investments recovered slightly and triggered foreign exchange inflows.
Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco Jr. said in an interview that the BSP expects the gross international reserves to rise from the revised level of $39.3 billion in April to a new record high of $39.5 billion.
“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 from 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 serve as a prelude to 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.”
At this point, Tetangco said there were “encouraging signs” that – while not indicating a dependable trend towards recovery just yet – could still spur positive sentiments towards the Philippine economy.
“Look at new home sales – they’re up,” Tetangco said, adding that while existing home sales remained depressed, the decline has slowed down. “Consumer confidence is up, the services sector is up and these are positive signs,” he said.
“If these positive indications in the real economy would continue, then the improvement in the financial market would also continue and we would see inflows,” Tetangco said.
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 is expecting reserves to reach $38.5 billion this year, with the balance of payments position at $700 million.
In April, however, the GIR was already at $39.3 billion, as a result of inflows from government borrowings and investments, as well as the BSP’s net foreign exchange operations and income from its investments abroad.
At the April level, Tetangco said the GIR could cover 6.3 months of imports of goods and payments of services and income. It was also equivalent to 5.6 times the country’s short-term external debt based on original maturity and three times based on residual maturity.
The gross international reserve (GIR) is the sum of all foreign exchange flowing into the country and the balance of payment (BOP) position is the remaining balance net of all external payments for debt servicing and imports.
Foreign exchange projections have been generally bleak for 2009 with the BSP expecting a zero growth in remittance inflows while market analysts and credit rating agencies projected a decline.
Despite weaker foreign exchange inflows, Tetangco said the country’s relatively robust external position would allow the economy to tolerate inflationary pressures while supporting sustainable growth trajectory.
The BOP is keenly watched by both credit rating agencies and investors since it was one of the major determinants of the country’s ability to continue servicing its external debt and other payments.
Source: Phillippine Star