The Bangko Sentral ng Pilipinas (BSP), in its efforts to control inflation and regulate the flow of money in the financial system, is implementing a more stringent approach by expanding the maturity period of securities used to address excess liquidity.
Yesterday, the central bank announced that it would introduce 56-day BSP bills starting from June 30. This initiative falls within the Interest Rate Corridor (IRC) framework, which aims to enhance monetary operations.
According to the BSP, introducing the 56-day BSP bill broadens the range of term instruments available to the central bank. It provides increased flexibility in responding to liquidity conditions changes while offering additional guidance for short-term market interest rates.
This move aligns with the BSP’s plan to reduce the reserve requirement ratio (RRR) once the relief measure concludes by the end of the month.
The measure permits banks to consider loans granted to micro, small, and medium-sized enterprises (MSMEs) and large non-affiliated enterprises as part of their deposit obligations to the central bank.
In addition to the existing 28-day BSP bill, the 56-day BSP bill will be introduced as an additional maturity option under the BSP securities facility.
Eligible counterparties will have the opportunity to participate in an auction for the 56-day BSP bill.
Initially, the volume offered will be small, gradually scaling up as liquidity conditions in the market allow.
The volume for the inaugural auction on June 30 will be disclosed two days prior, following the current practice for the 28-day BSP bill.
The BSP emphasized that introducing the 56-day BSP bill supports its objective of adopting a flexible and market-oriented approach to liquidity management in the financial system.
This approach aligns with its goal of promoting stability in both prices and the financial sector.
BSP Securities are monetary instruments issued by the central bank to implement its monetary policy and manage liquidity.
These instruments influence short-term market interest rates, directing them toward the policy rate and shaping liquidity conditions in the financial system.
With the passage of Republic Act 11211, which amends The New Central Bank Act (RA 7653), the BSP has regained the authority to issue its debt securities as part of its regular monetary operations.
Previously, the central bank was only permitted to issue its debt securities during exceptional shifts in price levels.
This restoration of the BSP’s ability to issue debt securities offers an additional tool for absorbing liquidity in the financial system.
The issuance of BSP securities complements other short-term monetary policy tools the central bank utilizes to manage liquidity, including the term deposit facility, overnight reverse repurchase facility, overnight deposit facility, and overnight lending facility.
By issuing BSP bills, the central bank enhances its flexibility in liquidity management, particularly in response to significant structural liquidity surpluses arising from capital flows or the release of additional liquidity resulting from reductions in bank reserve requirement ratios.
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