By Lee C. Chipongian
The soft launch of the Bangko Sentral ng Pilipinas (BSP) bond sale will start in the first quarter of 2020, BSP Deputy Governor Francisco G. Dakila Jr. has reconfirmed.
Dakila first disclosed last October an earlier-than-expected issuance to test the market for the BSP bonds. The central bank is also scheduled to conduct market-sounding exercises in January and February next year. The tenors will be longer than the term deposit facility (TDF) but whether it is one-year or the two-year tenor preference by banks is still on the table, he said.
“We need to maintain flexibility with respect to the tenors and timing (however) the timeline is second quarter of next year but we are aiming for a soft launching by the first quarter,” said Dakila.
He said the BSP bonds will be issued within the interest rate corridor (IRC) framework, from which the TDF came from. “(Our) aim is to strengthen the transmission of the policy rate to the rest of the economy so it will be one of the instruments that will be within that framework and the volumes will be determined by (taking a look) at it as a whole… how much liquidity to siphon off and decide which instrument will take what portion of adjustment in liquidity,” said Dakila.
BSP’s Department of Economic Research Director Dennis D. Lapid said the tenors for the BSP bonds will depend on market preference.
“We will be consulting with the industry prior to launching and we will also be coordinating with BTr (Bureau of the Treasury) in terms of the interconnection of the central registry of securities.
“The overall approach is to have some regularity in terms of the issuance of the securities so we will be pre-announcing a calendar similar right now with the TDF. That’s still being discussed. The overall design and configuration will depend partly on market preference and partly on our sense of what the overall short liquidity conditions will be,” said Lapid.
Dakila said the BSP bond is part of its roster of liquidity-absorbing instruments, it is not necessary to wind down the TDF.
“It will be one of the instruments that will go into IRC system and the objective is really to enhance the transmission of the policy stance to the economy… the more issuance you have the better the transmission (and) you will be operating in different tenors,” he added.
Earlier, Dakila said the tenor of the bonds will definitely be longer than the 28-day TDF but not more than two years. He has said that a two-year term is too long.
The market is in favor of two-year bonds based on the BSP’s previous consultation with banks. The BSP however prefers one-year tenor because the longer the bond’s maturity, the lesser liquidity the BSP will be able to siphon off the market.
The BSP currently has four open market operations – the overnight deposit facility, reverse repurchase facility which is the overnight policy rate (RRP), the overnight lending facility, and the TDF.
The BSP restored its authority to sell its own bonds or securities after its charter was amended and approved last February. Central bank sells bonds to reduce money supply and the length of maturity will determine how effective liquidity management will be.