BSP's FX swaps total $640 M

The Bangko Sentral ng Pilipinas (BSP) took more long positions in its foreign exchange (FX) swaps amounting to $640 million for the month of January amid its ongoing reserves accumulation and spot market intervention. The BSP’s long swaps totalled $690 million versus its shorts of $50 million. Swaps are aggregate short and long positions in forwards and futures in foreign currencies against the local currency. In contrast, the BSP which had been selling US dollars in support of the peso vis-à-vis the greenback, only had short positions in December 2022 amounting to $810 million. A BSP official explained that the BSP conducts FX swaps when they need to intervene in the exchange market beyond outright sale of FX. The BSP has to manage FX liquidity which basically, is an attempt to influence the exchange rate market. Also, 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. Meanwhile, the $640 million swaps in January will mature in a month. Holding long positions is a signal that the BSP is buying more US dollars. Swaps usually have maturities of one month, three months and up to one year. As of end-February this year, the country’s gross international reserves (GIR) amounted to $99.31 billion, lower compared to $100.66 billion in January. The GIR was below $100 billion for six months last year. The BSP started purchasing US dollar in October 2022. After selling US dollars to support the depreciating peso in the second half of 2022, the GIR lost $14.7 billion. The BSP was able to replenish the US dollar stock again after it hit a low of $93 billion in September last year. The peso depreciated to a record low of P59 on Sept. 29 and was poised to break past P60 in October if not for the BSP’s aggressive participation in the spot market. As a strategy, the BSP supplements its FX accumulation by transacting in long positions in forwards and futures but it also uses the swaps to sterilize its US dollar purchases. At the moment, the exchange rate ranges P54 - P55. The BSP revived the FX swaps in September last year, which was the month when the peso hit its record low of P59. For the entire 2021 there was zero FX swaps. The only other activity during the pandemic was in September and October 2020, and in February of the same year.