DUMAGUETE CITY—The Bangko Sentral ng Pilipinas (BSP) expects the local repurchase agreement market to eclipse foreign-exchange swaps as the primary tool for short-term liquidity this year, a shift toward global trading standards.

BSP Governor Eli Remolona Jr. said on Sunday, Feb. 2, that the repo market’s rapid expansion is poised to make the “makeshift” FX swap market redundant.

“I think it won’t be long before it surpasses the FX swap market and makes the FX swap market redundant, no longer necessary,” Remolona told reporters.

The central bank chief noted that repo transactions have surged from negligible levels 18 months ago to approximately ₱100 billion to date.

Remolona also stressed the inefficiency of FX swaps, describing the current reliance on them as unconventional. “FX swap is a bit weird because you need dollars,” the central bank governor said.

“It looks promising, I would say. It’s not a hard task because the existing markets were not so good, the makeshift markets. So once the banks found out that there’s this other contract and it’s easy to use, then they gravitate to that contract,” Remolona said.

While the BSP is ramping up its efforts to enhance the repo and money markets, the central bank is also laying the groundwork for a more “welcoming” corporate bond market. Both markets are essential to the effective transmission of monetary policy.

Remolona said the local bond market still lacks certain elements, particularly easier hedging and arbitrage tools, which he said are being addressed through the interest rate swap (IRS) market.

Authorities are also working to have peso-denominated government securities included in JPMorgan Chase & Co.’s emerging market government bond index, a move seen as crucial to deepening market liquidity.

“Once we are included in the JP Morgan Bond Index, the money will come in. When foreign investors join the market, it becomes much more liquid,” Remolona explained.

“A market is like a horse race—you need many different bets. Foreign investors bring views that differ from domestic players, which leads to more activity, more trading, and greater liquidity,” the governor said.

Remolona has said since assuming office in 2023 that deepening capital markets is a top priority, citing the Philippines’ continued reliance on bank financing and its lagging stock and bond markets relative to regional peers.

“We are close to being included in the JP Morgan Bond Index, and discussions are now focused on the pricing convention,” he further said.

National Treasurer Sharon P. Almanza earlier told Manila Bulletin that the country’s potential inclusion in the J.P. Morgan Bond Index could attract more than $2 billion, or approximately ₱114 billion, in additional foreign investment, with an expected one percent weighting in the index.