The Bangko Sentral ng Pilipinas is considering introducing additional tenors for its term deposit facility (TDF) amid sustained robust demand and as the interest rate corridor (IRC) system brought market rates closer to the policy rate within a year of implementation.
“The BSP has been successful in achieving most of its goals in implementing the IRC system as its framework for implementing monetary policy since June 2016. The IRC has been made symmetrical and narrower at 100 basis points (in effect, the interest rates for the overnight lending and deposit facilities were configured to be plus-minus 50 bps from the BSP policy rate) from 350 bps prior to IRC implementation,” Deputy Governor Diwa C. Guinigundo said in an e-mail.
Launched in June last year, the IRC was implemented to bring market rates nearer to the 3-percent policy rate by mopping up excess liquidity.
Under the IRC, the BSP conducts weekly TDF auctions, with tenors of seven and 28 days.
According to Guinigundo, “the bulk of liquidity absorption has been migrated from overnight to term instruments,” citing the latest BSP data showing that the TDF cornered more than P400 billion in banks’ excess funds in May from less than P100 billion in June last year.
The overnight deposit facility (ODF), meanwhile, narrowed to about P100 billion from about P1 trillion a year ago.
As such, Guinigundo said interbank lending rate had started to rise and move away from the ODF rate of 2.5 percent.
As of the end of May, the yields for the seven- and 28-day term deposits were at about 3 percent and 3.5 percent, respectively.
To follow-through on its success, Guinigundo said “the BSP is studying further enhancements to the IRC framework, (including) introducing additional TDF tenors.” He, however, did not elaborate.
Other plans moving forward include “varying auction volumes in accordance with latest forecasts of market liquidity; clarifying the stigma on borrowing from the central bank via the overnight lending facility (OLF), and reducing reliance on reserve requirements for liquidity absorption,” Guinigundo added.
The BSP is also in the process of automating the ODF and the OLF, which will be integrated into the BSP monetary operations system, a web-based trading platform for the IRC, he said.