BSP to issue its own debt papers starting Sept. 18 | Inquirer Business
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BSP to issue its own debt papers starting Sept. 18

By: - Reporter / @daxinq
/ 04:06 PM September 09, 2020

The central bank will start issuing its own debt instruments starting next week in a move that officials said would allow the monetary regulator to better manage the amount of cash circulating in the local financial system.

By being able to reduce the amount of circulating cash through the sale of bonds and increasing this by buying the bonds back, the Bangko Sentral ng Pilipinas (BSP) would also have another lever to control inflation on top of setting overnight borrowing rates and bank reserve requirements.

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In a statement on Wednesday (Sept. 9), the central bank said it will offer BSP Securities in the form of short term bills and longer-term bonds starting on Sept. 18, 2020 “as part of its initiative to shift to more market-based monetary operations.”

BSP bills and bonds will be offered via auction, with volumes to be limited at the outset, but to be gradually scaled up depending on market response and consistent with liquidity forecasts.

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Adding BSP securities to “standard monetary operations”, the BSP said, “provides an additional instrument for managing liquidity in the financial system.” It also supports “implementation of monetary policy under the Interest Rate Corridor framework,” the BSP added.

The central bank said issuing these securities would enhance the Interest Rate Corridor—a scheme in which banks are allowed to price securities slightly above or below the BSP’s policy rate. The BSP said it does not represent a change in monetary policy stance.

Issuing securities, the BSP said, “will add to the existing supply of risk-free financial instruments in the banking system.” This, it added, “could help in the development of the local bond market.”

For its initial offering, the BSP will auction off 28-day BSP bills with an indicative offer volume of about P20 billion subject to confirmation two days before the actual auction date.

The BSP’s authority to issue its own debt securities as part of its instruments for regular monetary operations was restored by Republic Act No. 11211, which amended the New Central Bank Act of 1993.

Previously, the BSP was allowed to issue only its own debt securities in cases when there are extraordinary movements in price levels. The restoration of the BSP’s power to issue its own debt securities provided it with an additional monetary instrument for absorbing financial system liquidity.

The issuance of BSP securities complements other short-term monetary policy tools used to manage liquidity in the financial system, like term deposit facility, overnight reverse repurchase facility, overnight deposit facility and overnight lending facility.

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TAGS: auction, Banking, Bonds, BSP, Business, cash, central bank, debt papers, economy, liquidity, monetary, Securities
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