Manila: 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.

According to Philippines News Agency, 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,' with transactions totaling about PHP100 billion since its launch.

Remolona stated, "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." FX swaps allow participants to hedge foreign exchange exposure at an agreed rate for a specific period.

In the bond market, IRS-related transactions have reached around PHP30 billion, with maturities expanding from one month to as long as 10 years. Remolona noted that once banks discovered the availability and ease of use of this other contract, they gravitated towards it, despite a learning curve, which he described as not being very steep.

BSP Deputy Governor Zeno Ronald Abenoja indicated that this development is expected to improve alignment among rates across BSP facilities. He remarked that as liquidity in these markets continues to grow and is distributed evenly among other players, improvements in the alignment of the rates relative to the different rates in the BSP facility are also anticipated.