MANILA – The Philippines’ foreign reserves are seen to surpass USD100 billion by the end of the year, partly due to the Bangko Sentral ng Pilipinas’ (BSP) decision to actively manage its gold holdings.
In a virtual briefing on Thursday, BSP Governor Benjamin Diokno said the central bank’s current gold holdings account for about 12.8 percent of the total gross international reserves (GIR).
The bulk of the GIR is in fixed income securities or bonds at 82 percent while the balance is shared by cash or the International Monetary Fund-related balances, such as the Special Drawing Rights (SDR) or the International Monetary Fund-created international reserve asset targeted to supplement the existing official reserves of member-countries.
“Given the significant movement of gold prices over the past two years, 27.44 percent increase in 2019, and another 18.31 percent increase year-to-date this year, the expected increase in domestic gold purchases because of Republic Act (RA) 11256, the BSP expects that gold will continue to support the country’s GIR,” Diokno said.
As of end-July, the country’s foreign reserves were at a record-high of USD98 billion.
RA 11256, which amended Sections 32 and 151 of the National Internal Revenue Code, exempts small miners from paying income and excise taxes on the gold they would sell to the BSP.
It was signed into law in May 2019 but its Implementing Rules and Regulations (IRR) were approved only last April 10 and took effect 15 days after.
Diokno said there has been a “significant improvement” in the volume of BSP’s gold purchases after the IRR took effect.
“And this (is) part of the reason why in July this year, the Monetary Board approved the active management of BSP gold reserves,” he said.
Diokno, however, clarified that although the current level of BSP’s gold holdings is “sizeable in absolute levels”, it is still a small portion of the foreign reserves on a relative basis.
He noted that based on the BSP’s studies, the current level of BSP’s gold holdings is higher than its optimum level.
Diokno said he considers the 10 percent ratio of gold holdings, relative to the country’s foreign reserves that he mentioned before, as “a guide rather than as an explicit target since we cannot control the price of gold, or rather assets, into the GIR.”
“Going forward, the BSP may have to increase its gold holdings depending on the demand and conditions,” he added. (PNA)