The Philippine Online Chronicles

The National Statistics Coordinating Board (NSCB) reported on Thursday that July headline inflation remained at 3.9 percent year-on-year. It was the same rate as last month and was below the estimate of 4.1 percent. Average inflation from January to June was kept at 4.2 percent, a level that is within the target of the monetary authorities.

The consumer prices this July rose faster than last year’s 0.2 percent. But the inflation rate for the past two months remained lowest since November 2009.

Banko Sentral ng Pilipinas (BSP) Governor Amandao Tetangco Jr said that the inflation rate is well within the target of the monetary authorities and therefore supporting the BSP’s decision to keep the overnight borrowing rate at four percent and the overnight lending rate at six percent.

For the month of July, prices of food, light and water (FLW) rose by 14.4 percent from the 16.4 percent it recorded last June. Likewise, miscellaneous costs also declined to 1.2 percent from 1.3 percent.

The prices of food, beverage and tobacco (FBT) subgroup rose by 3.2 percent. Housing and repairs (H&R) and services also jumped by 1.7 and four percent respectively.

RP forex reserves at a very comfortable level

The central bank is “very comfortable” with the Philippines’ foreign exchange reserves at USD48.6 billion despite declining by 0.2 percent from USD48.7 billion the previous month. However, the gross international reserves (GIR) grew by 21 percent from USD40.17 billion from a year ago.

The rise was consistent with the global economic recovery as remittances continue to pour in from the overseas Filipino workers (OFWs). Foreign investors have also increased their risk appetite, investing in emerging markets such as the Philippines. “Hot money” inflows have also registered a year on year rise. Hot money refers to the funds that are invested on a short-term basis. This money usually finds itself into the local equities and fixed income market.

The GIR is defined as the sum of all foreign exchange resources flowing into the Philippines. It is comprised of Gold, Special Drawing Rights, Foreign Investments and Foreign Exchange. Having a high GIR means the Philippines can defend the peso against other currencies.

The fall was attributed to the fall on the prices of gold in international market and the withdrawal of some foreign currency-denominated deposits to pay off maturing obligations. Gold price fell from USD1,244 to USD1,1169 and accounts for 14 percent or USD6.68 billion of the total reserves.

The ideal amount of reserves should be equivalent to four months worth of imports. Current reserves could cover 9.3 months worth of import of goods and services. Having a high GIR means the Philippines can defend the peso from depreciating against other currencies.

A study by Asian Development Bank (ADB), countries with more than four months of reserves may invest in other assets to benefit the economy.

The International Monetary Fund (IMF) has suggested that the Philippines’ invest in higher-yielding investment such as sovereign wealth funds and infrastructure. However, BSP charter only allows investments in gold, government securities and deposits.

Photo: “Rice is nice” by Nigel Goodman, c/o Flickr. Some Rights Reserved