The Great Flip: BSP Chief Predicts Repo Market Will Dethrone FX Swaps in 2026
In a major signal of the Philippines' evolving financial landscape, Bangko Sentral ng Pilipinas (BSP) Governor Eli Remolona Jr. announced that the interbank repurchase (repo) market is on a rapid trajectory to become the country's dominant money market tool. Speaking to reporters on February 1, 2026, Remolona projected that the repo market would surpass foreign exchange (FX) swaps within the year, potentially rendering the latter "redundant."
At the GME Academy, we view this as a foundational shift for USD/PHP trading. For years, FX swaps have been the primary vehicle for banks to manage liquidity and hedge currency exposure. If the repo market takes the lead, it signifies a "deepening" of the local capital market that moves the Philippines closer to global standards seen in the US and Europe.
1. The Engine of Growth: The Interest Rate Swap (IRS) Market
The catalyst for this surge is the Interest Rate Swap (IRS) market, which was officially launched in November 2024.
The Mechanism: The IRS allows banks to hedge using the Overnight Reference Rate (ORR), which is anchored to the BSP's own variable overnight reverse repurchase (RRP) rate.
Rapid Adoption: Since its launch, 16 major banks—including BDO, BPI, and Metrobank—have joined as market makers. Transactions have already hit the ₱100 billion mark, with maturities now stretching from one month to an impressive 10 years.
Why it Matters: A robust IRS market creates a reliable "Yield Curve." This makes it easier for banks to price everything from corporate bonds to home mortgages, reducing the "choppy" pricing seen in years past.
2. Why Repos are Winning the "Liquidity War".
For decades, regulators were cautious about repos due to past financial stability risks. However, under Governor Remolona, the stance has shifted toward active promotion.
Simplicity and Efficiency: Remolona noted that once banks realized the ease of the new IRS contracts, they "gravitated" toward them. The learning curve has proven shorter than expected.
Better Monetary Transmission: BSP Deputy Governor Zeno Ronald Abenoja highlighted that increased repo liquidity ensures that the BSP’s policy rates (currently at 4.5% as of early 2026) are more accurately reflected across all banking facilities.
3. Forex Impact: What Happens to the USD/PHP?
For Forex Trading, the "redundancy" of the FX swap market has direct implications for the Peso:
Reduced Currency Volatility: If banks no longer need to rely heavily on FX swaps for basic liquidity management, the sudden "spikes" in USD/PHP demand caused by interbank swap rollovers may diminish.
Increased Foreign Investment: A deeper, more transparent bond market (supported by the IRS) makes Philippine government securities more attractive to global investors. Increased demand for these bonds typically leads to a stronger or more stable Peso.
The "Benchmark" Shift: Traders should move their focus from the Philippine Bloomberg Valuation (BVAL) curve alone to the emerging IRS/ORR benchmarks to gauge where interest rates—and consequently the currency—are headed.
The GME Academy Analysis: "Trading the New Benchmark"
At Global Markets Eruditio, we believe Governor Remolona's "Great Flip" is the most important structural reform for the Peso in a decade. While USD/PHP is currently hovering around the 58.90 level due to global headwinds, the strengthening of the domestic repo market provides a "structural floor" that protects the economy from external shocks.
Are You Ready for the "Repo Era"? Traditional FX swap strategies are becoming outdated. To trade the Peso successfully in 2026, you must understand how interbank liquidity is shifting toward government securities and interest rate swaps.
Join our FREE Forex Workshop. Learn how to trade the "Yield Curve." We’ll show you how the BSP’s new repo framework impacts the USD/PHP and how to use the Overnight Reference Rate (ORR) to predict interest rate moves before they happen.
