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Planned BSP-Fed repo transaction will increase the Philippines’ foreign exchange reserves, according to an economist

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The planned repurchase agreement between the Bangko Sentral ng Pilipinas (BSP) and the Federal Reserve is anticipated to increase the nation’s dollar reserves.

According to Michael Ricafort, chief economist at Rizal Commercial Banking Corporation (RCBC), the repurchase agreement, or repo, “would help contribute to the country’s existing US dollar liquidity/funding capacity, if needed.”

According to the official, “This would supplement US dollar funding/swap agreements of the country with other central banks in Asia/globally, adding to the buffer/cushion for the peso exchange rate, if needed, based on existing global best practices as countries collectively learned from the lessons of the Asian financial crisis in the late 1990s/past crisis periods.”

According to Ricafort, the deal will boost the nation’s reserve of US dollars “by using US government bonds/Treasuries holdings/investments, for example, as collateral (without the need to sell them outright in the market to receive US dollar money, if necessary).”

A repo is a short-term securities deal in which a central bank sells a security to another party and then buys it back at a premium.

BSP Governor Felipe Medalla had already stated that they were thinking about entering into an overnight repo agreement with the Fed, although he would not specify the amount.

Without providing further details, he stated that the deal would be completed this year.
He said that the BSP has had this option in the past, but has not used it.

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