Philippines may cut US treasury holdings after Moody’s move

The Philippine central bank may consider reducing its holdings of US Treasuries after Moody’s Ratings downgraded the US’ credit score, according to Governor Eli Remolona.

“We’re looking at it,” Remolona said when asked at a briefing on Friday if there’s a chance the Philippines will start cutting its US treasuries as part of its reserves.

“It’s one thing when other countries’ debt is downgraded, but the US Treasuries, now that’s a big thing.”

US Treasuries are “still the most liquid market” and will likely remain an important part of the Philippines’ gross international reserves, he said. “The dollar is still the number one currency in terms of international lending environment, in terms of investments,” he added.

The removal of the US from the ranks of Aaa issuers by Moody’s renewed market focus on the nation’s fiscal deficit — which has exceeded 6% of gross domestic product the past two years, unprecedented in the modern era for a time outside of recession or war.

The ratings firm said American economic strengths could “no longer fully counterbalance the decline in fiscal metrics.”

Dollar-denominated assets represent around 80% of the country’s foreign reserves which stood at $104.6 billion in April.

Last month, Remolona said the central bank has the “right mix of assets” in its reserves and wasn’t looking to cut its holdings of US Treasuries despite upheavals in global financial markets triggered by President Donald Trump’s evolving tariff actions.

Diversification

But the Bangko Sentral ng Pilipinas (BSP) has been over the past decade looking to diversify its foreign reserves into other currencies and asset classes.

The monetary authority typically maintains a healthy level of reserves so it can provide liquidity support during times of volatility in the currency market and balance of payments.

While the dollar has been regarded as a safe-haven currency for a long time, that advantage “may be reduced over time but it’s a slow process,” the central bank chief said. “So this dominance of the dollar is not permanent. It can be eroded.”

Remolona also said there’s still plenty of room for monetary authorities to cut the benchmark interest rate amid expectations that inflation will remain low over the coming months.

There’s likely to be two more rate cuts this year, he said. “We still have to be careful because we don’t want to cut too much.”