Bangko Sentral ng Pilipinas (BSP) Governor Eli Remolona Jr. described the uptake in the interbank repurchase (repo) market as “very promising” and expects it to surpass foreign exchange (FX) swaps this year.

The interest rate swap (IRS) market, introduced in November 2024, allows banks to hedge using the overnight reference rate (ORR) of the Bankers Association of the Philippines (BAP), which is based on the BSP’s overnight reverse repurchase (RRP) rate.

Currently, 16 banks participate in the IRS market, which is “growing very fast,” according to Remolona, with transactions totaling about PHP100 billion since its launch.

“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 allow participants to hedge foreign exchange exposure at an agreed rate for a specific period.

In the bond market, Remolona said IRS-related transactions have reached around PHP30 billion, with maturities expanding from 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 said the development is also expected to improve alignment among rates 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. (PNA)