BSP to increase liquidity mop ups as PH financial system gradually normalizes | Inquirer Business

BSP to increase liquidity mop ups as PH financial system gradually normalizes

By: - Reporter / @daxinq
/ 03:29 PM June 09, 2020

The central bank will start increasing to pre-lockdown levels the volume of its weekly borrowing activities, which are meant to regulate the liquidity in the local financial system by temporarily siphoning off banks’ idle funds.

In a statement, the Bangko Sentral ng Pilipinas said this decision was made after regulators noted the gradual return of the banking system to normalcy, as evidenced by the rising demand for short-term placements with the central bank.


“Consistent with its practice of assessing current financial system liquidity and market conditions in the conduct of its monetary operations, the BSP will gradually re-offer other tenors in its term deposit facility,” it said.

“Similarly, the daily offer volumes in the reverse repurchase facility will be increased at a measured pace,” the central bank added, explaining that these “operational adjustments” will begin today, June 10, with the re-opening of the 14-day term deposit facility and P200-billion auction offering of its overnight borrowing facility — a key interest rate benchmark for the local economy.


The central bank held its last full auction for the term deposit facility’s three tenors — the 7-, 14- and 28-day instruments — last March 11, and paused these operations until April 15, during which only the shortest tenor was made available until the present.

During this time, skittish banks shied away from locking in their funds with longer-term instruments due to the market volatility that followed the outbreak of the coronavirus pandemic. In recent weeks, however, the demand from banks for short term placements has increased progressively.

“The continued stabilization of liquidity conditions has been observed over the past weeks,” the central bank said. “Sustained high oversubscriptions in the term deposit facility and reverse repurchase auctions indicate that financial market conditions are in place for a gradual normalization in the BSP’s monetary operations.”

The regulator explained that the measured rescaling in the conduct of monetary policy implementation will also provide better guidance to short-term interest rates as the domestic economy slowly reopens.

It stressed that the reconfiguration in the auction volumes and tenors in the two facilities are “purely operational measures” and remain in line with the stance of monetary policy, and added that it stood ready to adjust the details of its operations based on market developments and liquidity conditions.

“Henceforth, the BSP will announce on a weekly basis the TDF offerings and RRP volumes as part of its operational adjustment towards the ‘new economy’,” it said.

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TAGS: Bangko Sentral ng Pilipinas, Banking, COVID-19 lockdown
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