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Manila Bulletin devider Business devider BSP Bills improves inflation control – Diokno

BSP Bills improves inflation control – Diokno

Published Sep 21, 2020 06:00 am

Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno said the central bank’s ability to issue its own securities will improve both liquidity and inflation control, especially after infusing over P1.4 trillion of money supply in the financial system since the pandemic began.

Benjamin Diokno, governor of the Bangko Sentral ng Pilipinas (BSP), speaks during an interview in Manila, the Philippines, on Wednesday, Feb. 5, 2020. Diokno said it would be better to cut interest rates sooner than later, a signal that policy makers will likely lower borrowing costs Thursday. Photographer: Geric Cruz/Bloomberg

“We understand that debt investors closely monitor inflation. With our own debt instruments, the BSP further enhances our ability to maintain a low and stable inflation environment,” said Diokno.

The BSP issued its first BSP securities as 28-day BSP Bills last Friday. Diokno, in an investors’ forum, said the new facility will be an effective additional monetary policy instrument under the interest rate corridor system.

In a commentary over the weekend, BSP Deputy Governor Francisco G. Dakila Jr. also noted of the strong demand for the new 28-day or 1-month BSP Bills. BSP awarded in full the P20 billion offer.

“The BSP will gradually adjust auction volumes depending on market response and consistent with liquidity forecasts,” said Dakila.

The BSP Bills on its maiden auction attracted P43.4 billion tenders or 2.2 times the offer volume, with a weighted average interest rate of 1.8355 percent.

“The results of the auction reflected robust demand, with banks pricing the 28-day BSP Bills relatively close to the 28-day TDF (term deposit facility) rate,” said Dakila.

As of end-August, the additional liquidity provided by the BSP to the market or financial system has reached P1.4 trillion or 7.3 percent equivalent to gross domestic product.

Diokno said their monetary “toolkit is far from exhausted” and that the BSP “stand ready to do more if needed.”

The BSP, to stimulate the recovering economy, has so far reduced the policy rate by a cumulative 175 basis points this year, bringing the interest rates down to 2.25 percent, the lowest in BSP policy rate history.

Diokno remained confident that monetary transmission to effectively support the recovering economy remains adequate, and that the prevailing interest rate environment and ample liquidity is conducive to economic activity.

He has been noting signs of recovery in domestic activity in past months. He said the BSP will continue to review and evaluate the transmission of the BSP’s policy actions.

The BSP has revised higher its inflation forecast for this year to 2.6 percent from 2.3 percent and also increased the 2021 and 2022 forecasts to three percent from 2.6 percent, and 3.1 percent from three percent.

The benign inflation environment has enabled the BSP to keep interest rates low which is already in negative rate in real terms.

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Bangko Sentral ng Pilipinas (BSP)
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