PHL money market growing as repurchase transactions increase

By Katherine K. Chan, Reporter

DUMAGUETE CITY — The Philippines’ money market, particularly for repurchase agreement (repo) contracts, is growing rapidly and could potentially surpass the foreign exchange (FX) swaps, the Bangko Sentral ng Pilipinas (BSP) said.

“Now, our repo market, based on the GMRA (Global Master Repurchase Agreement) contract, is developing very fast so that it’s beginning to rival the FX swap market,” BSP Governor Eli M. Remolona, Jr. said during a media information session here.

“At this point, a lot of activity in the repo market is about 75% of the activity in the FX swaps. So, things seem to be developing in the right direction.”

The BSP chief said transactions in the repo market have now reached about P100 billion from “almost nothing a year and half ago,” making it the number two market in the country after FX swaps.

“I think it won’t be long before it surpasses the FX swap market and makes the FX swap market redundant (and) no longer necessary.”

Asked when he sees the repo market surpassing the FX swap market, Mr. Remolona said: “I think this year, it should overtake it.”

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said the repo market serves as another source of funding for banks, other financial institutions and investors, which could contribute to the development of the Philippine capital market.

“This provides greater optionality on more innovative ways to get funding in a more expeditious while stable manner, by allowing the borrower to hold on earning investments or assets, without the need to liquidate and sell them and use them as collateral instead, thereby also promoting stability and at least preventing forced liquidations and disruptions in the local financial markets,” he said in a Viber message.

Increased repo transactions could ease the pressure on the peso and dollar or other foreign currency-denominated lending rates in the FX swap market, leading to more stable funding costs, he said.

BOND MARKET
Meanwhile, the BSP chief said the bond market is also showing “very encouraging signs of development,” with about P30 billion worth of transactions seen since the peso interest rate swap market was launched in November 2024 involving longer maturities.

“So, it looks promising, I would say.”

He said the central bank is working with several partners to create a roadmap for a more accessible corporate bond market.

BSP Deputy Governor Zeno Ronald R. Abenoja added that increased activity in the capital market has helped guide yields closer to benchmark rates.

“As the liquidity in these markets continues to increase and also be evenly distributed towards other tenors, what we have seen also are improvements in the alignment of the rates relative to the different rates in the BSP facility,” Mr. Abenoja said during the same event.

“So, with increased volume, we continue this to further align among themselves in the short end of the market, and that could be transmitted all the way up to the long end, as the governor has mentioned.”

The BSP has been pushing to deepen the country’s capital market to boost liquidity, improve domestic savings and investments, and enhance monetary policy transmission.

“Money and capital markets help the BSP do its job,” Mr. Remolona said. “At the moment, these markets are makeshift markets, and they could be more helpful.”

“We need money and bond markets that transmit monetary policy more effectively. We need a corporate bond market that can serve as a spare tire in case the banking system fails.”