The central bank’s foreign exchange (FX) swap operations reallocated maturities but maintained the same position of $3.89 billion in June.

Based on Bangko Sentral ng Pilipinas (BSP) data, residual maturity of up to one month totaled $1.96 billion in June from $1.85 billion in May.

Meanwhile, up to three months maturity slipped to $1.93 billion from the previous $2.04 billion. 

The swaps remain in long positions. The BSP conducts FX swaps to sterilize its reserves accumulation. Holding long positions is a signal that the BSP is buying more US dollars.

The peso vis-à-vis the US dollar closed at P56.595 last Aug. 31. There was no spot market on Sept. 1 due to the suspension of BSP PhilPassPlus operations after Malacanang declared Friday as a non-working day because of typhoon Goring.

Meanwhile, 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.

The peso has shown some volatility at the P55-56 level in the past two weeks.

However, BSP Governor Eli M. Remolona has said that BSP’s hawkish monetary policy stance is good for the exchange rate.

Remolona said the BSP has a relatively small presence in the exchange rate market since intervention is not their main policy as far as FX market is concerned. Instead, he prefers clear forward guidance or hints of future Monetary Board actions when it comes to the benchmark rate. He believes forward guidance will calm markets more than FX intervention.

The BSP chief also said that they basically have a six-week position in the FX market, which is the period between a US Federal Reserve policy action and the BSP’s response. During that six weeks, the exchange rate market will try to anticipate BSP’s policy decision which could result to volatility.

The BSP has a flexible and free-floating exchange rate policy, which means it is market-determined. However, it is prepared to participate in the exchange rate market to ensure orderly market conditions and to reduce excessive short-term volatility.

At the P56 to the US dollar level, the BSP considers the peso movement as stable, meaning it moves in both directions, either to appreciate or to depreciate versus the greenback.