Something commendable has emerged through the collaboration between the Bangko Sentral ng Pilipinas and the Bankers Association of the Philippines in introducing enhanced peso interest rate swaps. This initiative is expected to bolster our financial market, potentially resulting in decreased interest rates on loans.
Based on the ORR, the interest rate swaps will be priced and thereby allow for a deeper financial market as 15 banks that include BDO Unibank, Metrobank, Bank of PI, JPMorgan Chase and ING Bank will act as market makers with two-way quotes. In this case, the Bangko Sentral is playing a pivotal role by way of delivering the government securities that it will sell to the banks for its purpose of employing its monetary policy, which is taking out excess cash from the system so that the inflation rate will not spike as it leads to less purchasing power for the citizens.
The interest rate swaps market is seen resulting in the development of new financial products and services that will lead to a deeper capital market for the Philippines. It is a hedging mechanism by which a borrower can reduce its risk by exchanging a fixed-rate loan with a floating-rate loan.
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