BSP adopts ‘open’ rediscounting regime

Published November 9, 2020, 6:00 AM

by Lee C. Chipongian

The central bank will no longer limit its rediscounting facility through a budget and instead adopted an “open regime” principle as a monetary policy tool to infuse liquidity to a pandemic-hit market.

The Bangko Sentral ng Pilipinas (BSP) used to have a specific budget for its Peso Rediscount Facility which could range from P20 billion to P60 billion, and its Exporters’ Dollar and Yen Rediscount Facility which has a budget of $500 million, that they announce to banks. With the COVID-19 pandemic, they not only increased the volume to an undisclosed amount, but is also more accommodative.

                According to BSP Director Caryl Valdez of the Department of Loans and Credit (DLC), the removal of the rediscounting budget is related to the BSP’s temporary relief measures granted to banks to cushion the impact of the pandemic. Rediscounting is offered by the BSP to increase the credit of banks with temporary liquidity requirements by refinancing loans.

                “There’s no exact budget for rediscounting facility, we are open regime with regards to performing the lender of last resort function of the BSP,” said Valdez. And as lender of last resort, she said the BSP is prepared to provide the needed liquidity for the market particularly at this time of the COVID-19.

Valdez further explained – “an open volume regime with respect to the rediscount facilities means that the BSP stands ready to provide short-term liquidity to eligible banks and to the system in times of extraordinary tightness of the money market as lender of last resort.” 

                The BSP’s DLC also grants other loans and advances to banks such as the overdraft credit line (ODL) and emergency loans. The “open regime” principle however does not apply to the ODL and emergency loans.

                “As regards emergency loans, the amount that the BSP may grant would be based on the amount that a solvent bank needs in order to overcome serious liquidity problem, subject to certain conditions pursuant to existing BSP regulations,” said Valdez.

During Thursday’s “GBED Talks” online, BSP Governor Benjamin E. Diokno said they will continue to extend temporary relief measures until they see a convincing economic recovery, pandemic or post-pandemic.

Diokno continues to see a recovery of 6.5 percent to 7.5 percent GDP in 2021 but he expects a “full” pre-pandemic recovery in 2022.

                Specifically to rediscounting facility, Diokno said in extending temporary measures, they will be looking at both global and local developments. “We are commited to extend the relief measures for as long as we do not see a full recovery which means a GDP of six percent and maybe employment at around five percent. So, we will try to keep our monetary policy easing measures for as long as we have not fully or we’re not on the brink of achieving our long term growth and employment targets,” he said.

                Before the BSP shifted to an interest rate corridor system in 2016, the rediscounting facility was a popular BSP tool for managing liquidity in the system that rather than reducing the policy rate, it will just cut its budget for the facility.

                As of end-September this year, there are 50 banks that are maintaining an active rediscounting line amounting to P320.80 billion.  

                But as of end-October, availments totaled P26.90 billion because banks are awashed with cash and are not lending because of the recession and business activity restrictions due to the lockdown.

                Diokno said the 50 banks, of which 17 are universal and commercial banks, are maintaining rediscounting lines with the BSP as part of their contingency funding plan.

                The 17 big banks have borrowed P25.92 billion of the P26.90 billion as of October 31, the rest or P883.2 million are released to nine thrift banks, and P93.1 million are availed of by rural and cooperative banks. The rediscounting loans have a maximum term of 180 days and because of the pandemic, the BSP has reduced the term spread relative to the BSP’s overnight lending rate to zero regardless of maturity, from 1-day to 180-days.