By LEE C. CHIPONGIAN
The Bangko Sentral ng Pilipinas (BSP) has revised the guidelines for the rediscount rates of its peso, US dollar and Japanese yen loans to reflect more of market rates and in preparation for the discontinuation of the London Inter-Bank Offered Rate (LIBOR).
Based on BSP Circular No. 1071, the rediscount rate or the interest rate that BSP charges on the rediscounting loan based on the BSP overnight lending rate will include a spread which will depend on the term of the loan.
“The spread between these two may change periodically to complement changes in the BSP’s monetary policy goals,” BSP Governor Benjamin E. Diokno said in the circular memo he signed last January 8.
The peso rediscounting window has 1-90 days and 91-180 days term facility. The previous Circular No. 964 of 2017 implemented peso rediscount rates that are based on the latest available BSP overnight lending rate plus term premia.
In the meantime, the rediscount rates for the Exporters Dollar and Yen Rediscount Facility or EDYRF are based on market rates and the 90-day LIBOR plus 200 basis points and a term premia for longer maturities as per Circular No. 807 of 2013.
Diokno said they will still use the 90-day LIBOR but once the reference rate is phased out by the end of next year, the BSP will adopt a benchmark rate plus an appropriate spread depending on the term of the loan as approved by the BSP.
The rates’ spread may differ to “reflect movements in the market interest rates and to achieve monetary policy objectives,” he said.
The foreign currency rediscounting window has 1-90 days, 91-180 days, and 181-360 days term facility.
LIBOR, the dominant reference rate for a long time, will expire on December 2021 and it will be discontinued after being plagued by rate-rigging issues.
The BSP and other affected central banks in the region will have to come up with alternative reference rates and risk-free rates with the discontinuation of the LIBOR.
The discontinuation of LIBOR will affect the BSP’s PHIREF, BVAL Reference Rates, and the US dollar/Philippine peso by the Bankers Association of the Philippines.
As of December 2019, the BSP’s rediscounting facility released ₱122.167 billion. There was still no taker for the EDYRF in 2019.
As defined by the central bank, rediscounting is a “privilege granted to qualified banks that have approved and active rediscounting line with the BSP to obtain loans or advances from BSP using the eligible papers of its end-user borrowers as collaterals.”
In short, it’s an available credit facility for banks requiring temporary liquidity. The BSP also utilizes rediscounting to manage credit volume in the financial system and ultimately control inflation pressures.