Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno said the Philippines have adequate foreign exchange (FX) stock to pay for maturing loans despite impending higher interest rates as policy normalization approaches which will impact on FX reserves.

Gov. Benjamin E. Diokno of the Bangko Sentral ng Pilipinas

“In the event of rising interest rate on the part of the Fed (US Federal Reserve), the concern of many emerging economy is that they will run out of foreign exchange to service their ballooning debt. We’re confident that we won’t be in that kind of situation,” said Diokno during a press briefing late Monday, Dec. 13.

“We have a hefty gross international reserves (GIR) and the inflows are continuously coming like OFW remittances, BPO (business process outsourcing) receipts and foreign direct investments. So, we’re confident we won’t be affected by any such movement on the part of the Fed,” he added.

The country’s outstanding external debt rose by 15.16 percent or by $14 billion year-on-year to $105.93 billion as of end-September as the government borrowed more for pandemic response in 2020 and 2021. The government also raised $3 billion from the issuance of global bonds and $1.3 billion from official sources to fund its general financing requirements and COVID-19 programs/projects.

The BSP chief said that he is “glad” that the Fed “has been giving forward guidance unlike before” when as he described it – “there was a haphazard, the so-called tantrum before” but the US central bank now has careful and continuous forward guidance for the rest of the world.

“No two countries are alike and in the Philippines, we’re confident that we have the necessary tool to address any threat of inflation,” said Diokno. The current inflation average is 4.5 percent which was over the two-four percent target and above the 4.3 percent forecast of the BSP for this year.

In the meantime, the country’s GIR stood at $107.67 billion as of end-November. Compared to same period in 2020, the GIR increased by $2.85 billion year-on-year.

In a Dec. 9 Monetary Board meeting, the BSP revised the GIR projection for 2021 lower to $111 billion compared to an earlier estimate (Sept. 16) of $114 billion. The BSP also revised lower the 2022 GIR projection of $115 billion to just $112 billion.

The central bank said the emerging 2021 GIR is lower than earlier anticipated due to the “use of reserves to pay foreign currency obligations and various expenditures.”

The BSP received fresh SDR or special drawing rights’ liquidity from the International Monetary Fund (IMF) last August 23 amounting to $2.78 billion. The credit raised the SDR reserves to $3.99 billion. The amount was the Philippines’ share of the $650 billion additional SDRs issued by the IMF as global liquidity assistance.

Diokno said earlier that the BSP will use all types of forward guidance to help calm markets and as conditions change with the eventual normalization of US and European interest rates.

Diokno has said that forward guidance is a policy tool that enhances the effectiveness of monetary policy by steering interest rate expectations and reducing market uncertainty.

The BSP’s Monetary Board has been known to give “purely qualitative forward guidance” which are “broad statements that give an overview of the likely future path of monetary policy” such as when they say – as the BSP often does – that it remains “keen on sustaining monetary policy support for as long as necessary in order for the momentum of economic recovery to gain more traction.”

The most common BSP forward guidance is when they say the central bank “stands ready to adjust its policy settings as needed to ensure price and financial stability conducive to a sustainable economic recovery.”

The BSP’s Monetary Board will have its last policy meeting on Thursday, Dec. 16. The BSP has said that it will not likely to change benchmark interest rates setting while the economy has yet to show a full and sustained recovery, post-pandemic. The overnight reverse repurchase facility has remained steady at a record low of two percent since November 2020.

Source: Manila Bulletin (