MANILA (Reuters) – The Philippine central bank announced the launch on Monday of an rate of interest swaps market anchored to a newly established benchmark rate to reinforce bond market trading and liquidity.

The beginning of IRS transactions follows the popularity by the International Swaps and Derivatives Association of the benchmark – the overnight reference rate (ORR) – which the Bankers Association of the Philippines helped establish.

IRS, a fixture of developed fixed-income markets, lets parties manage rate risk or bet on the direction of borrowing costs by exchanging fixed and floating rate of interest streams.

The ORR, to be based on the central bank’s every day reverse repurchase auctions, is anticipated to offer a greater benchmark for pricing loans, now based on yields from thinly traded government securities.

“We’re excited for PESO IRS to go live to assist boost transactions, create a benchmark yield curve, and deepen our capital markets,” central bank Governor Eli Remolona said in an announcement. “A benchmark curve will help banks and other lenders price loans at various maturities.”

Sixteen banks have committed to be market makers for the ORR-based IRS, ensuring pricing across maturities from one month to 10 years and enhancing rate of interest transparency, the central bank said.

Bangko Sentral ng Pilipinas also said it was working on adopting global master repurchase agreement contracts that can allow banks to access treasury bonds for repo transactions to spice up the federal government securities repo market.

(Reporting by Karen Lema; Editing by William Mallard)