AMPLE gross international reserves (GIR) are needed to cushion the impact of an expected global slowdown, Bangko Sentral ng Pilipinas (BSP) Governor Eli Remolona said on Monday.
'These reserves provide a cushion against negative global spillovers,' Remolona said at an economic briefing in Laoag, Ilocos Norte.
'Our foreign reserves have hovered around $100 billion, and we expect it to remain at roughly the same level in the coming year,' he added.
The country's gross international reserves stood at $99.7 billion in July, based on the latest BSP data, slightly higher than the $99.4 billion a month earlier.
These consist of foreign investments, gold, foreign exchange, a reserve position in the International Monetary Fund and special drawing rights.GIR hit a high of $110.12 billion in 2020 but fell to as low as $95.1 billion in late 2022 as the central bank moved to defend the peso, which had fallen to a record low of P59 against the dollar amid aggressive monetary tightening by the US Federal Reserve (Fed).
Remolona underscored the importance of reserves, noting that continued interest rate hikes by the US central bank would have a global impact.
'As you know, the Fed has tightened so aggressively that it's bound to slow down not just the US economy but also the rest of the world,' he said.
'This poses risks to us and other emerging markets because financial accidents could happen, so it's a good thing that we have ample reserves because this is part of our defense against negative global spillovers.'
Locally, the BSP's policymaking Monetary Board moved to match the Fed's rate hikes, which Remolona said had helped avoid destabilizing exchange rate swings.'
Monetary policy is about adjusting the key policy interest rate, and as I have said before, we have raised that by 425 basis points,' he noted.
The central bank, the BSP chief added, has also 'occasionally intervened in the foreign exchange market.'
The BSP paused hiking interest rates in May and continued doing so in June. With inflation nearing target and the economy having slowed markedly in the second quarter, analysts expect another pause to be announced this Thursday.
This is despite expectations that inflation could begin rising anew due to typhoon damage, the impact of the El Niño weather pattern, and the Fed's having resumed hiking rates after a pause in June.
The Federal Reserve, which halted its actions in June, declared a quarter-percentage-point rise in the past month and suggested that its efforts to make conditions stricter were not yet complete.
Monetary authorities, Remolona said, have been offering forward guidance to help alleviate speculation and prevent market volatility.
'[T]hese are hints about what we might do in the next few meetings,' he said.'
This forward guidance reduces the uncertainty in the market, so as a consequence of the foreign exchange pressures ... you can see that it has been relatively stable,' he added.
The peso has weakened in recent weeks in the wake of the Fed's having indicated that it could raise interest rates further, but not to the depths seen last year.
The currency closed at P56.78 versus the dollar on Monday, down 46 and a half centavos.