Enhanced Peso IRS Market Launches, Aiming to Deepen Philippine Capital Markets

The Bankers Association of the Philippines (BAP) has officially launched the enhanced Peso Interest Rate Swap (IRS) market today, November 18, with 16 banks committing to act as market makers for the new Overnight Reference Rate (ORR).

The Peso IRS ORR is tied to the variable overnight reverse repurchase rate (RRP) published by the Bangko Sentral ng Pilipinas (BSP). It provides pricing for swaps with maturities ranging from 30 days to 10 years, offering new tools for hedging and position-taking in the financial markets.

“We are excited for the Peso IRS to go live to help boost transactions, create a benchmark yield curve, and deepen our capital markets,” said BSP Governor Eli Remolona Jr. in a statement. He highlighted the importance of the benchmark yield curve in pricing loans of various maturities and supporting liquidity for the country’s growing economy.

Participating Institutions and Infrastructure

The trading platform for the Peso IRS will be provided by Bloomberg, with pricing based on the BSP’s daily RRP.

The 16 bank market-makers include:

• Local Banks: BPI, BDO, China Bank, EastWest Bank, Metrobank, PNB, Security Bank, RCBC, and UnionBank.
• Foreign Institutions: ANZ, Citi, Deutsche Bank, HSBC, ING Bank, JP Morgan Chase, and Standard Chartered.

Five additional banks—BDO Private Bank, Maybank, Mizuho, MUFG, and SMBC—will participate as regular contributors.

Goals and Future Developments

The Peso IRS aims to enhance the development of yield curves, facilitating better pricing for short-term credit instruments such as loans.

BAP Open Market Committee chairman Paul Favila emphasized its role in market development, while BAP President Jose Teodoro “TG” Limcaoco called it a significant step forward in growing the Philippine capital market.

In collaboration with the national government and foreign partners, the BSP is also pursuing initiatives to strengthen financial markets, including:

• Creating liquid benchmarks through focused issuance and bond reopenings.
• Adopting Global Master Repurchase Agreement (GMRA) contracts for Treasury Bonds in repos.
• Advocating for legislation to simplify tax rates on passive income.

“These steps will make interest rates more transparent, easing access to loans for SMEs and consumers, and enhancing monetary policy effectiveness,” said Remolona.

Policy Updates

The Monetary Board of the BSP recently reduced key policy rates by 25 basis points in October, following a similar cut in August—the first reductions in nearly four years. The next policy meeting is set for December 19, 2024.