The Bangko Sentral ng Pilipinas’ (BSP) foreign exchange (FX) swap operations is stable at the $2-billion level with the central bank holding FX for reserves and market intervention.
The FX swaps, which are all in long positions, was maintained at $2.189 billion in July, the same amount in June. Holding long positions is a signal that the BSP is buying more US dollars.
The FX swaps was lower compared to same time in 2023 of $4.727 billion.
Of the swaps in July, about $2.105 billion has residual maturity of one month and $84 million has the longer maturity of more than one month.
The FX swaps is one of the central bank’s intervention techniques or measures. FX swaps are aggregate short and long positions in forwards and futures in foreign currencies vis-à-vis the domestic currency including the forward leg of currency swaps.
Besides the use of FX swaps as market intervention, it also sterilizes BSP’s reserves accumulation. As of end-September this year, the country has US dollar stock of $111.981 billion, the highest on record so far. These are foreign assets of the BSP invested in foreign-issued securities, monetary gold, and FX holdings.
With BSP’s intervention in the spot market, its FX holdings increased to $2.027 billion compared to end-September 2023 of $834.4 million and end-August this year of $789.5 million.
As a matter of policy, the BSP’s participation in the spot market is limited to tempering sharp fluctuations in the exchange rate. The BSP also does not target nor avoid any level of the peso and does not alter currency trends.
At the moment, the peso vis-a-vis the US dollar is relatively stable at P56 to P57. This was within the government's exchange rate assumption of P56 to P58 for 2024, a range viewed as a "resilient" currency given persistent global FX-related pressures.
To enhance its FX rules on derivatives, the BSP in July released a draft circular proposing to amend the rules for peso-denominated transactions and in the open FX position of banks.
BSP describes FX derivatives as derivatives that involve the buying or selling of foreign currency against the Philippine peso and includes transactions such as forward FX contract which refers to an agreement for delayed delivery of a foreign currency in which the buyer agrees to purchase and the seller agrees to deliver at a specified future date a specified amount at a specified exchange rate.
Earlier this year, the BSP has also revised the regulations on the derivatives transactions of banks, quasi-banks and trust corporations relating to authorized activities and those that will require additional notification to the BSP.
Besides FX swaps, derivatives activities affected by the revised circular are credit default swaps, credit derivative, credit-linked note, forward rate agreement, FX option, non-deliverable swaps, structured products, ROP’s paired warrant programs and total return swap.