The Bangko Sentral ng Pilipinas’ (BSP) foreign exchange (FX) swaps totaled $4.403 billion in August, down from $4.727 billion in July.
Compared to same period last year of zero transactions, the BSP’s FX swaps which is also its unfiltered US dollar source, is more robust in 2023.
The swaps have a maturity of up to one month and up to three months. Based on BSP data, residual maturity of up to one month totaled $1.998 billion from $1.91 billion in July, while up to three months maturity decreased to $2.405 billion versus $2.817 billion in the previous month.
The swaps remain in long positions which is a signal that BSP is buying US dollars from the foreign exchange market.
The BSP conducts FX swaps to sterilize its reserves accumulation. As of end-September, the country’s international reserves total $98.1 billion which was lower than end-August’s $99.6 billion.
The peso vis-à-vis the US dollar has been stable at the P56-level for weeks despite depreciating near the P57 area several times, but never breaking past P57.
The BSP resorts to FX swaps when the implied peso rate in the swap market is lower than the reverse repurchase or RRP overnight rate which means it is cheaper.
FX swaps, as one of BSP’s open market operations, 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 reserve 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 lef, as agreed on deal date, according to the BSP.
Earlier this month, BSP Governor Eli M. Remolona Jr. said he is not worried about the peso-US dollar exchange rate, but if they do enter the spot market, it is mostly to “stabilize a disorderly market” which is not the case these days.
Remolona’s rhetoric about the exchange rate has not changed since he was appointed BSP’s seventh governor in July. He thinks the BSP’s hawkish stance is good for the peso.
The BSP’s aggressive nine straight rate hikes that brought the key rate to 6.25 percent has done enough to stabilize the exchange rate, he said.
Remolona said the central bank will intervene only to calm the market but for the most part, it will continue to allow the peso to be influenced by market sentiments.
At the P56 level, the BSP considers the peso movement as stable because it moves in both direction, either to appreciate or become stronger than the greenback, or it depreciates or closing weaker versus the US dollar at the end of the trading day. The BSP calls this a normal exchange rate day, driven by business operations.