THE decline in Philippine gross international reserves (GIR) was minimal in the second quarter, but currency pressures could continue until the Federal Reserve is done tightening rates, Fitch Ratings said.
Fitch Ratings, in a commentary posted on its website on Sept. 7, said the Association of Southeast Asian Nations (ASEAN) saw their dollar reserves decline with the Fed posed for further tightening.
“Several sovereigns in ASEAN, including Indonesia (BBB/Stable), Malaysia (BBB+/Stable), the Philippines (BBB/Stable) and Thailand (BBB+/Stable), saw reserves decline over the second quarter, which may in some cases reflect intervention to support currencies,” it said.
“The changes have been marginal so far, not influencing credit profiles significantly, but currency pressure may continue until the Fed finishes raising rates,” it added.
The Bangko Sentral ng Pilipinas (BSP) sometimes intervenes in the foreign exchange market to mitigate the volatility brought by the Fed’s policy tightening.
The Fed hiked borrowing costs by 25 basis points at its meeting in July. This brought the Fed funds rate to 5.25-5.5%, its highest level in 22 years.
The BSP reported that dollar reserves fell 0.14% month on month to $99.81 billion.
Foreign currency deposits fell by 52.5% to $648 million at end-August from $1.367 billion a month earlier and by 63.5% from $1.777 billion a year ago.
Meanwhile, Fitch Ratings said that official reserves among Fitch-rated sovereigns in Asia-Pacific rose $170 billion in the first half of the year.
This was driven by increases in GIR among economies with large buffers such as China, Singapore, India, Japan, and Taiwan.
“Strong external liquidity positions support these sovereigns’ credit profiles, but further reserve increases are unlikely to have much near-term influence on ratings,” the Fitch Ratings said.
However, sustained declines in GIR “could be a drive of negative rating action” in Bangladesh, the Maldives, Mongolia, and Vietnam.
Fitch Ratings earlier kept the Philippines’ long-term foreign currency issuer default rating at “BBB.”
A “BBB” rating indicates low default risk and adequate capacity to pay, although some unfavorable economic conditions could impede this.
Fitch Ratings also upgraded the Philippines’ outlook to stable from negative, reflecting its confidence in the economy’s continued recovery from the pandemic.
A stable outlook indicates a rating that is likely to be maintained rather than lowered or upgraded in the medium and long terms or over the next 18-24 months. — Keisha B. Ta-asan
