BSP to issue own securities next week
THE central bank is set to begin selling its own securities on Sept. 18, saying this will become an additional tool in managing liquidity in the financial system.
Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno on Wednesday said it will initially offer P20 billion worth of 28-day BSP bills. The final offer volume will be confirmed on Sept. 16.
“As part of its initiative to shift to a more market-based monetary operations, the BSP will offer its own securities via auction in the form of bills and bonds, starting Sept. 18,” he said on Twitter.
The central bank said the auction volume for the debt papers will be small at the start, but this will be gradually increased based on market response and consistent with liquidity forecast.
“The inclusion of BSP Securities issuance in the standard monetary operations of the BSP provides an additional instrument for managing liquidity in the financial system and support the implementation of monetary policy under the Interest Rate Corridor (IRC) framework,” the BSP said in a statement.
It said the issuance of BSP securities does not mean there will be a change in the central bank’s monetary policy stance.
In 2016, the BSP adopted the IRC system to guide short-term market interest rates through the overnight reverse repurchase rate, which is currently at a record low of 2.25%. It also includes the overnight lending and deposit rates of 2.75% and 1.75%, respectively, applicable to banks when borrowing or depositing to the BSP.
The BSP bills will have the same tenor as the 28-day term deposit papers that are auctioned every Wednesday.
“They will be offered simultaneously at first, but on different days. Eventually, the 28-day TDF (term deposit facility) will be phased out,” Mr. Diokno said.
The sale of the securities is allowed under Republic Act 11211 or The New Central Bank Act, which was signed into law in February 2019.
“The issuance of securities by the BSP will add to the existing supply of risk-free financial instruments in the banking system, which in turn could help in the development of the local bond market,” the BSP said.
National Treasurer Rosalia V. de Leon said there will be “no crowding out effect” as even the BSP’s TDF remains oversubscribed.
“We closely coordinate with BSP on our respective issuance including segment of curve. No crowding out effect,” Ms. De Leon said in a Viber message to reporters.
On Wednesday, the BSP’s weekly TDF auction garnered bids worth P541.442 billion going beyond the P360-billion offer. This was also higher than the P502.084 billion in bids logged the previous week for the P310-billion offering.
“The BSP bond issuance would be one of the main monetary policy tools to mop (up) excess liquidity, eventually with much longer tenors and to complement the weekly TDF auctions,” Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a text message.
He added timing of the issuance of BSP securities is acceptable given the “large excess liquidity” in the financial system.
Domestic liquidity or M3, which is considered to be the broadest measure of money supply, grew 14.5% year on year in July, easing from the 14.9% pace in June, preliminary data from the BSP showed. — Luz Wendy T. Noble