By LEE C. CHIPONGIAN
The Bangko Sentral ng Pilipinas’s (BSP) rediscount rate will shift from fixed to a flexible term premium starting Tuesday.
The BSP said adapting a flexible term will enable it to “arrive at the appropriate rediscount rate.”
“Under this policy, the BSP will have the flexibility to recalibrate the rates in response to changes in monetary management and/or economic conditions,” said the BSP.
Based on a new BSP Circular, the peso rediscount rates will still be based on the BSP overnight lending rate plus a spread depending on the term of the loan while the rates for the Exporters Dollar and Yen Rediscount Facility (EDYRF) will continue to be based on the 90-day London Inter-Bank Offered Rate (LIBOR) plus the spread depending on the term of the loan.
“The appropriate spread for each term of the loan may change periodically to complement changes in the BSP’s monetary policy goals and to reflect movements in the market interest rates,” said the BSP.
Beginning Tuesday, the applicable rediscount rates for the peso are: the 1-90 days will be at 5.44650 percent; and for 91-180 days, at 6.39300 percent
For EDYRF Rates, the 1-90 days at the US-dollar is at 4.85488 percent, the yen at 2.89917 percent. The 91-180 days’ US-dollar is 5.80138 percent and the yen at 3.84567 percent. For the 181-360 days, the US-dollar is 7.69438 percent and the yen at 5.73867 percent.
The BSP said, the amendment in the rediscount rates is “part of the broader reforms of the BSP to bring its policies in line with its lender of last resort function and to ensure that the rediscounting policies remain relevant to the present and future demands on monetary management.”
The BSP has revised the guidelines for the rediscount rates to reflect more of market rates and in preparation for the discontinuation LIBOR next year.
BSP Circular No. 1071 was signed by BSP Governor Benjamin E. Diokno last January 8.
The previous Circular No. 964 of 2017 implemented a peso rediscount rates that are based on the latest available BSP overnight lending rate plus term premia.
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.
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 takers for the EDYRF in 2019.