ADVANCED PESO INTEREST RATE EXCHANGE The market will open on Monday (Nov. 18), the Bangko Sentral ng Pilipinas (BSP) said. he said it would mark “an important step towards that.” to improve trading and liquidity in the domestic bond market.”
The Bankers Association of the Philippines (BAP) in a statement said it is launching the peso interest rate swap (IRS) market, following the release of the International Swaps and Derivatives Association (ISDA) update on Nov. 15.
The Philippine Overnight Reference Rate (ORR) is included in the rates published by ISDA.
“The enhanced IRS peso market aims to encourage the development of yield curves to continue to support the pricing requirements of short-term debt instruments, such as loans, in the market,” BAP Open Market Committee Chairman Paul Raymond A. Favila said in a statement.
BAP developed the Philippine ORR, which is based on the BSP’s flexible overnight repo rate.
The BSP said in a statement on Sunday that the IRS market will deepen domestic financial markets, which will boost savings and investment and strengthen the transmission of monetary policy.
“We are happy that the PESO IRS is alive to help increase transactions, create a more productive curve, and deepen our capital markets,” said BSP Governor Eli M. Remolona, Jr.
“Rating will help banks and other lenders with loan rates in different areas. All this efThe fort is just one of the many initiatives that the National Government, the BSP, and Philippine and foreign banks are working closely together to achieve these goals. Chief among these is providing investors who need capital to invest in our fast-growing economy.”
Sixteen BAP member banks will act as market makers that will quote rates for two-way short-term and long-term swaps against the Philippine ORR.
These are BDO Unibank, Inc.; Bank of the Philippine Islands; China Banking Corp.; EastWest Bank Corp.; Metropolitan Bank & Trust Co.; Philippine National Bank; Security Bank Corp.; Rizal Commercial Banking Corp.; Union Bank of the Philippines, Inc.; Australia and New Zealand Banking Group; Citi; Deutsche Bank; HSBC; ING Bank; JPMorgan Chase; and Standard Chartered Bank.
“(Banks) will ensure that there will be swap prices for various maturities, from one month to 10 years, providing a new way to hedge or take positions,” the BSP said.
Five banks will also serve as regular partners: BDO Private Bank, Maybank, Mizuho, MUFG, and SMBC.
Bloomberg will act as the trading platform for the exchange market, while the BSP will be the publisher of the daily variable repurchase rate.
“Now that the enhanced PESO IRS market is operational, it is time for us to work together and ensure that the changes we have made will achieve their goals,” BAP President Jose Teodoro K. Limcaoco said.
“The introduction of the improved PESO IRS market, and the creation of a repo market for government securities, are important steps in growing our Philippine currency market,” he added.
Chief Economist Rizal Commercial Banking Corp. (RCBC) Michael L. Ricafort said in a Viber message that the Peso IRS market will provide the investing community with products and solutions, which will help develop the country’s markets.
“This will allow businesses, institutions, and people to better manage and protect interest rate risks to better adapt to the development of the country and the markets, at least reduce the market risk, or gain capital / profit from the right view of the market,” it said.
“The investing public will be able to take positions in declining or rising US and local interest rates, based on economic cycles and monetary policy,” he added.
Meanwhile, the BSP said it is working to accept contracts for the Global Master Repurchase Agreement (GMRA), which “allows it to deliver Treasury bonds to banks when they go into domestic markets as part of monetary policy operations.”
“This is expected to increase the stock market of government shares, currently most of them are bank bonds, as banks get access to the BSP Treasury, which they can return to make more profit. As the BSP shift introduces other banks to GMRA, they may start engaging in other repo activities as well,” he said.
The extended repo market will provide a “strong alternative benchmark” to the margin PESO IRS. – Aaron Michael C. Sy
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