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NEWS UPDATES 8 July 2010

Philippine Central Bank forcasts reserve hike

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The Bangko Sentral ng Pilipinas (BSP) revised upwards for a second time its dollar reserves forecast this year amid their continued rise in the first half of this year. Governor Amando Tetangco said the BSP expects the country’s gross international reserves (GIR) to reach $49 billion to $50 billion this year, up from an earlier estimate of $48 billion to $49 billion.

“The increase came basically from foreign exchange operations of the BSP and this resulted in an increase in foreign exchange inflows particularly remittances and BPO [business process outsourcing] services. Plus of course, we also saw positive inflows in portfolio investments. Exports were up so that also added into the foreign exchange coming into the system,” Tetangco said.

Another source would be the investments income of the BSP, the Manila Times reported.

“When we invest our reserves we earn interest. The bigger your reserves, the bigger the interest income, plus income from trading operations. Earlier this year we also benefited [from] the foreign loans that were secured by the national government. So part of this has become part of the reserves and the other part was used by the national government,” the BPS chief said.

The BSP holds international reserves for the foreign exchange requirements of the country in case the domestic commercial banks’ supply of the greenback falls short of demand.

The foreign assets that the BSP holds are mostly in the form of investments in foreign-issued securities, monetary gold and foreign exchange. An ample GIR helps prop up the peso and keep domestic inflation at bay.

Preliminary data from the BSP showed that the country’s GIR rose to $48.4 billion at end-June, or $7 million higher than the end-May level of $47.7 billion.

The value of gold holdings inched up 45 percent to $6.9 billion in May from $4.7 billion last year.

Foreign investments also grew 17.4 percent to $39.8 billion from $33.93 billion previously.

These dollar receipts were partly offset by the payments of maturing foreign exchange obligations of the national government and the central bank.

The current GIR could cover nine months of imports of goods and payments of services and income. It is also equivalent to 9.3 times the country’s short-term external debt based on original maturity and 4.8 times based on residual maturity.

Net international reserves, which excludes short-term liabilities, also climbed to $48.4 billion at end-June, or higher by $7 million than the previous month’s $47.7 billion.

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