Outstanding BSP FX swaps at $4 B

The Bangko Sentral ng Pilipinas’ (BSP) foreign exchange (FX) swaps totalled $4.16 billion in September, keeping a steady position from $4.49 billion in August.

The FX swaps from July to August has a bigger increase of $1.67 billion compared to August to September, based on data from the BSP. The country’s higher gross international reserves which has surpassed $100 billion in September has revived activity in this open market operation (OMO).

The OMO registered activity in August with $2.82 billion from $1 billion in July. From March to June this year, during the government’s sticter lockdown measures, the BSP has zero swaps.

FX swaps, as one BSP’s OMO, involves the actual exchange of two currencies – in principal amount -- on a specific date at a rate agreed on the deal date or the first leg, and a reverse exchange of the same two currencies at a date further in the future or the second leg at a rate different from the rate applied to the first leg, as agreed on deal date, according to the BSP.

The swaps have a maturity of up to one month only. There were no transactions longer than one month.

The FX swaps which was BSP’s unfiltered US dollar source, is a way for banks to increase its peso liquidity. The central bank uses FX swaps to intervene in the US dollar-peso market. It unwinds the swaps position in defence of the peso when it is weak.

Data from the BSP showed that in 2019, there were only $553 million FX swaps at end-December compared to zero transactions in 2018. The country’s reserves in 2019 was at $87.84 billion.