Volatility pulls down BoP
The country’s balance of payments swung to a deficit of $450 million in August from a surplus of $114 million a year ago, as foreign funds pulled out their investments amid the volatility in the financial markets, data from Bangko Sentral ng Pilipinas show.
The August deficit also reversed the $354-million surplus recorded in July this year and was the biggest gap in 19 months, or since January 2014 when it hit a record $4.48 billion.
Bangko Sentral said despite the deficit in August, BoP in the first eight months remained in surplus at $1.588 billion, a reversal of the $3.530-billion deficit a year earlier.
“We have seen significant depreciation of the peso relative to other currencies on account of the impending adjustment in the monetary policy in the US, the Aug. 11 devaluation of Chinese yuan, and the crash in the stock market on Aug. 24,” Bangko Sentral Deputy Governor Diwa Guinigundo said in a news briefing.
Foreign portfolio investments or “hot money” posted a net outflow of $543 million in August, a reversal of the $483-million net inflow a year ago, as foreign funds fled the country for the sixth consecutive month on investors’ concern over the imminent interest rates hike by the US Federal Reserve as the world’s biggest economy continued to recover.
The People’s Bank of China devalued the yuan on Aug. 11, dragging the rest of the region with it. PBoC again cut the value of the Chinese yuan against the US dollar the following day, trimming the reference rate by 1.62 percent.
BoP summarizes the country’s economic transactions with the rest of the world, with a deficit indicating that foreign exchange payments outstrip receipts and a surplus the reverse.
Persistent surpluses help build up the country’s gross international reserves, an ample supply of which supports the value of the peso against the US dollar and keep domestic inflation at bay.
Bangko Sentral revised the BoP target to a surplus of $2 billion, taking into account the positive developments in the world economy.
Guinigundo earlier said the Bangko Sentral remained optimistic of sustaining a BOP surplus this year as current account was expected to remain robust.
Current account posted a surplus of $2.8 billion in the second quarter, lower than $3.1-billion surplus a year ago on account of the widening of the deficit in the trade-in-goods account.
This brought the total current account surplus in the first half to $4.7 billion, representing 3.3 percent of gross domestic product in the period. This was up by 20.1 percent from $3.9 billion surplus in the first half of 2014, on the back of robust net receipts from trade-in-services and primary and secondary income.
Bangko Sentral said as BoP and current account remained surplus this year, the gross international reserves reached $80.6 billion as of end-June 2015.