BSP's FX swaps up at $3.35 B

To sterilize its reserves accumulation, the Bangko Sentral ng Pilipinas’ (BSP) foreign exchange (FX) swap transactions continue to increase to $3.35 billion in March from $1.46 billion in February. Of the $3.35 billion FX swaps, $1.68 billion is maturing in one month while $1.67 billion have up to three months maturity. This was higher than February’s $615 million one-month swaps and $845 million long positions of up to three months maturity. These are long positions in forwards and futures in foreign currencies. Holding long positions is a signal that the BSP is buying more US dollars. While the BSP uses its swaps as a market tool to build up reserves, it is also utilized as spot market exchange rate intervention. A central bank source has said 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. As of end-March, the country’s gross international reserves (GIR) amounted to $101.5 billion, higher than end-February’s $98.21 billion. The BSP said the GIR is “more than adequate external liquidity buffer”. It is equivalent to 7.6 months’ worth of imports of goods and payments of services and primary income. It is also about 6.1 times the country’s short-term external debt based on original maturity and 4.2 times based on residual maturity. The BSP has a conservative GIR projection for 2023 of $100 billion. BSP Governor Felipe M. Medalla has said that it is important for the Philippines to maintain what he described as “very liquid” FX reserves as shock absorber against external risks such as geopolitical tensions. Without naming any country or countries involved in diplomatic rows, Medalla said previously that if a major geopolitical shock were to happen in the region and closer to home, the BSP will have the necessary buffers to shield inflation, the exchange rate and the economy from external shocks. The Philippines has been decades involved in maritime rights issues in the South China Sea, namely with China which does not recognize the validity of the 2016 Hague arbitration decision that upheld the rights of the Philippines over its maritime area in the disputed South China Sea. Meanwhile, the country’s GIR is composed of foreign investments, gold reserves, and other foreign assets. The GIR was below $100 billion for six months in 2022 in defense of the depreciating peso vis-à-vis the US dollar. BSP’s US dollar buying which started in October 2022 increased the GIR back to $101.5 billion by end-March this year from a low of $93 billion in September last year.