By Lee C. Chipongian

Bangko Sentral ng Pilipinas (BSP) Governor Nestor A. Espenilla Jr. said they will launch the trading of repurchase agreement or repo facility next week, part of the local currency debt and foreign exchange market initiatives.

Espenilla also announced that the BSP will be consulting the private sector on further easing foreign exchange regulations for ease of doing business and other transactions.

Espenilla said the government’s collaborative efforts to fasttrack the development of the local currency debt market will “officially unfolds with the launching of the Government Securities Repo Program on November 27.” A repo transaction increases a bank’s reserves.

“The reforms are geared towards increasing transparency in the issuance and pricing of government bonds that would translate into increased efficiency, lower borrowing cost, and more dynamic participation,” he told a bankers’ forum. “Strengthening the foundational elements would facilitate development of the broader financial market.” Espenilla said it has been a central bank strategic policy reform to “accelerate financial market development with special focus on the local currency debt market and foreign exchange market” for a deeper and more liquid capital market.

“There is much room for growth in the domestic debt market. The numbers show that the outstanding local currency bonds represent a mere 34.2 percent of the country’s GDP,” he said. “Foreign exchange regulations are being overhauled to achieve more efficiency and ease of doing business.” Espenilla said the BSP will also release an exposure draft for the liberalization of rules covering foreign exchange loans and offshore loans of the private sector.

“This will re-focus the registration process to primarily data-gathering and minimize documentary requirements,” he said, adding that the liberalized rules will encourage a “better organized foreign exchange market” through improved transparency, price discovery, and it will “enhance market conduct.”

Last August, Espenilla announced reform package initiatives by the BSP, Department of Finance, Bureau of the Treasury and the Securities and Exchange Commission which will increase the volume of treasury bills, provide a transparent mechanism covering the issuance of government securities, establish a reliable yield curve, develop a set of obligations, rights and incentives of market makers, introduce an efficient repo market, and strengthen regulatory oversight over the repo and fixed income market.

Espenilla has said that the repo market is important in creating liquidity for government securities.

The BSP has had to think up policy changes to tweak the repo market for transparency and better liquidity management. Repo agreements are one of the open market instruments where the BSP buys government securities from a bank with a commitment to sell it back at a pre-determined rate.