Forex reserves might reach $65 B this year?

Just about 3 weeks ago, Bangko Sentral ng Pilipinas (BSP) Governor Armando Tetangco estimated that the bank’s gross international reserves (GIR) might reach $60 B by the end of this year. The GIR as of end-October then was $57 B.

Then something happened last month. The incremental increase in monthly GIR was not just $2 B, but $4.15 B, so that the end-November forex reserves was at $61.3 B already. Was it because of the debt crisis worries in Ireland and Spain? Because of the uneasiness in the Quantitative Easing (QE) in the US? Because of the huge inflow of returning Filipinos from abroad? Because of huge inflow of Koreans after the artillery shooting between the two Koreas late last month?

Whatever the reasons were, the huge inflow of dollars into the country in just one month caused worries in several sectors as the Peso – US$ exchange rate touched the 43 level for several days. There were also worries that the BSP intervened hard last month by buying up lots of dollars to raise the GIR and strengthen the peso, which reduces the peso value of the country’s foreign debt and debt payment.

If the monthly increase in forex reserves will continue at $4 B, then the end-2010 GIR of the BSP will reach $65 B. An all-time high of course. Though this may be interpreted as improving business environment of the country, it can also be seen that business environment elsewhere are simply bad, resulting in the migration of capital and investments into the Philippines, temporarily or permanently.

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