(STAR) By Des Ferriols - The country’s gross international reserves (GIR) rose to a record high of $32.4 billion as of October this year, 4.9 percent higher than the end-September level of $30.9 billion, the Bangko Sentral ng Pilipinas (BSP) reported yesterday.

The build-up in reserves was mainly due to the BSP’s continued dollar purchases in the foreign exchange market, a move aimed at slowing the rapid appreciaton of the peso against the dollar.

Strong inflows of portfolio investment into the stock market and money sent home by Filipinos working overseas have supported the peso’s gains and analysts expect the local currency to continue its rise towards year-end when remittance flows get heavier in time for Christmas holiday spending.

At yesterday’s foreign exchange trading at the Philippine Dealing System, the peso gained a hefty 33.50 centavos to close at 43.275 to the dollar, nearing the 42-to-$1 territory.

BSP Governor Amando M. Tetangco Jr. said that at this level, the country’s reserves were enough to cover 5.8 months worth of imports of goods and payments of services and income. This level was also equivalent to 5.4 times the country’s short-term external debt based on original maturity and 3.3 times based on residual maturity.

Tetangco said the reserves were also boosted by income receipts from the BSP’s investments abroad and the deposit made by the Power Sector Assets and Liabilities Management Corp. (PSALM).

PSALM sold some of its assets as it implemented the privatization program and the foreign exchange-denominated sales proceeds were counted into the GIR.

However, Tetangco said these inflows were partly offset by the National Government’s debt service payments on its maturing obligations.

With inflows steadily building up, Tetangco said they expect the country’s reserves for next year to be at least $1 billion higher than this year’s level.

Tetangco said the steady inflow of foreign exchange from investments and overseas Filipino workers (OFWs) would be sustained next year.

According to Tetangco, next year’s GIR could easily surpass this year’s projected GIR level of $31 billion based on the strength of portfolio and direct investment inflows.

“I will not say any specific numbers until we examine the emerging numbers but easily, we’ll surpass this year’s level by at least a billion,” he said.

Tetangco said forex inflows would also be affected by rising global

liquidity especially after the US Federal Reserve Board decided on another 25-basis point cut in the US interest rates.

Tetangco said the increase in global liquidity posed a risk to the country’s inflation target, indicating further easing of monetary policy should the US Federal Reserve Board cut its rates further.

According to Tetangco, the rise in global liquidity had resulted in the increase in foreign exchange inflows into the country as investors sought better yields in the emerging markets.

Tetangco said this has allowed the country to beef up its external reserves and prepay a significant portion of its foreign debt but this has also increased domestic liquidity.

“For the Philippines, increased global liquidity poses a risk to the BSP’s inflation target,” Tetangco said.

Thus far, Tetangco said, the BSP’s monetary policy settings were producing what he referred to as the “desired effects” as domestic liquidity growth slowed down to below 20 percent in the last three months with the latest figure at 14.9 percent as of August.

Chief News Editor: Sol Jose Vanzi

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