Bangko Sentral ng Pilipinas (BSP) Governor Eli Remolona Jr. said momentum in the interbank repurchase (repo) market is accelerating rapidly, calling the uptake “very promising” and projecting it will overtake foreign exchange (FX) swaps within the year.
Launched in November 2024, the interest rate swap (IRS) market is already reshaping banks’ risk management strategies, enabling hedging using the Bankers Association of the Philippines’ (BAP) overnight reference rate (ORR), which is anchored to the BSP’s overnight reverse repurchase (RRP) rate.
Participation has expanded to 16 banks, and Remolona said the market is “growing very fast,” with transaction volumes already reaching approximately P100 billion since inception.
“It’s the number two market, second only to the FX swap market [but] I think it won’t be long before it surpasses the FX swap market and makes the FX swap market redundant, no longer necessary,” he told reporters in an interview Sunday.
FX swaps are traditionally used to hedge foreign exchange exposure at a predetermined rate for a fixed term, but Remolona signaled their dominance is fading.
In the bond market, IRS-linked activity has surged to around PHP30 billion, with contract maturities stretching well beyond initial expectations—from just one month to as long as 10 years.
“So once the banks found out that there’s this other contract and it’s easy to use, then they gravitate to that contract. There’s a learning curve, but the learning curve is not so steep. So, I think in terms of the money and the bond markets, it’s very promising, he said.
BSP Deputy Governor Zeno Ronald Abenoja added that the expansion of these markets should directly strengthen rate consistency across BSP facilities.
“As liquidity in these markets continues to increase, and is also evenly distributed towards other players, I can see also improvements in the alignment of the rates relative to the different rates in the BSP facility,” he said.
PIXABAY PHOTO