The Bangko Sentral ng Pilipinas (BSP) disclosed its foreign exchange (FX) swap transactions for May slightly declined to $3.89 billion from the previous month’s figure of $4 billion.
These transactions, however, highlight the central bank’s ongoing efforts to bolster its reserves, particularly in US dollars.
The BSP data revealed that the FX swaps remained in long positions, signaling the BSP’s strong appetite for US dollars. These strategic FX swaps play a crucial role in sterilizing the central bank’s reserves accumulation, ensuring a robust and well-managed monetary environment.
FX swaps with maturities of up to one month accounted for $1.85 billion in May, compared to the preceding month’s total of $2.12 billion. Simultaneously, FX swaps with maturities of up to three months reached $2.04 billion, marking an increase from the $1.88 billion recorded in April.
While the primary objective of the BSP’s FX swaps is to fortify its reserves, these instruments also serve as an effective tool for spot market exchange rate intervention. As such, the BSP strategically employs FX swaps to intervene in the exchange market, ensuring stability and resilience beyond outright FX sales.
Moreover, the central bank resorts to FX swaps when the implied peso rate in the swap market is lower than the reverse repurchase or RRP overnight rate.