By Lee C. Chipongian
The central bank plans to use a combination of debt instruments and term deposit facility (TDF) for a more effective monetary operations after it has restored its authority to issue Bangko Sentral ng Pilipinas (BSP) stabilization bonds.
BSP Deputy Governor Diwa C. Guinigundo said there is a need to distinguish between mopping up “big amounts” and keeping liquidity in the BSP for fine-tuning purposes. “In other words, you mop up in bulk, and all the rest will be for fine-tuning purposes,” he said.
One of possible set up is that the bonds is for mopping up in bulk and the overnight instruments is for fine-tuning market rates, and in between the overnight and a longer-dated tenor, is the TDF.
This framework assures there will be no competition between the BSP and the Bureau of the Treasury (BTr). “We may have the same tenor but the BSP may not be doing it regularly because once we mop up a certain level of liquidity for a longer period, then all the rest will be fine-tuning instruments,” said Guinigundo.
National Treasurer Rosalia V. De Leon, in a separate interview, said that definitely, there will be no overlapping in terms of tenors. “We will continue to synchronize,” she said.
De Leon said the BSP may just be interested, initially, to issue one-month tenor and that it will not issue regularly. Unlike the government which sells bonds for financing, the BSP’s debt instruments are for monetary management. “I’m sure the TDF will continue to be their regular facility. That’s my understanding, and that they will not cross over to the longer-term tenors,” she said.
Guinigundo, in the meantime, explained that the underlying principle of its bond issuance is that it will not compete with the BTr. “It will not result in a mutual crowding out, and the two instruments will not compete against each other even if they may have the same tenor,” he said. “But, if one is regular and the other is not regular but on a wholesale basis, and contingent on actual need for monetary stabilization, then they should not compete against each other.”
Guinigundo added that always, there will be consultation with the market to determine its appetite for such bonds, as well as timing and tenors.
The central bank monetary operations involve the buying and selling of government securities, lending and borrowing against underlying assets as collateral, and acceptance of fixed-term deposits, among other things.
The BSP stabilization bonds will be used as collateral and the TDF is for bank deposits, offered at 7-, 14- and 28-days. This should support its core P305 billion-worth of government securities they currently use to mop up liquidity daily, said Guinigundo. “(With more collaterals) we can borrow at collateralized basis from the banks which should hopefully bring down the cost of borrowing because its collateralized and the third counterparty is the BSP,” he said. Since BSP was given limited collaterals in the form of government securities, they have used special deposit accounts in the past as catch basin for excess liquidity. The SDA has been replaced by the TDF in 2016.
The amended New Central Bank Act was signed into law last February 14, as Republic Act No. 11211. The restoration of the authority to issue central bank debt papers empowers the BSP to use this instrument particularly during times when there are structural surplus liquidity.
For years, since the BSP could not issue its own debt papers, there was an agreement between the central bank and the National Government that since only the government could tap the bonds market, the BSP will concentrate on the loans market.
With its restored ability to issue its own bonds, Guinigundo has said that the BSP “can move more quickly” when using its open market facility that is more market based as well negotiable and marketable, to manage liquidity and sustain price stability.