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Manila Bulletin devider Business devider BSP siphons off P1.5 trillion of liquidity

BSP siphons off P1.5 trillion of liquidity

Published Sep 22, 2020 05:00 am

The Bangko Sentral ng Pilipinas (BSP) has absorbed P1.5 trillion of liquidity from the financial system as of end-June this year and amid the worst of the community quarantine period, according to a report.

 This was the total outstanding amount that was siphoned off by the BSP’s liquidity facilities or its open market operations (OMO) such as the overnight deposit facility (ODF) which absorbed about P1.09 trillion of the total.

 “Bulk of the BSP’s liquidity‐absorbing monetary operations had been through the

ODF, comprising about 73.3 percent of the total outstanding amount,” the BSP said in its latest economic and financial developments report.

 The ODF absorbs residual system liquidity to keep market rates from falling below the interest rate corridor system. The ODF rate is the policy rate or overnight reverse repurchase (RRP) minus 50 basis points, it is the interest rate floor for the overnight interbank rate.

 The average daily placements in the ODF in the second quarter was at P560.25 billion, higher than P226.56 billion in the first quarter, noted the BSP.

 The weekly term deposit facility (TDF) and the RRP facility absorbed the rest of the market liquidity or P410 billion. “Placements in the TDF and RRP facility each made up 13.4 percent,” said the BSP.

 The central bank has done several calibrations to its monetary operations TDF and RRP facility to provide adequate and sufficient short-term peso liquidity as well as to ensure there will be funding available for businesses and households while on lockdown due to COVID-19 pandemic.

 Part of OMO calibrations to ensure liquidity was to suspend TDF offerings in April and cutting the daily RRP volume by P100 billion from its usual P305 billion offering. The BSP did this because it was hoping the funds will be diverted as bank loans or in government securities.

The BSP resumed some of the TDF tenor offerings such as the 7-day and 14-day in April and June while the daily RRP is back to P305 billion also by June.

Market interventions to ease or deflect COVID-19 damage have led the BSP to do more than its share in ensuring that an excess liquidity condition continues while on lockdown and containment measures.

BSP Governor Benjamin E. Diokno in an investor forum last Friday said the BSP has so far infused the financial system with P1.4 trillion of liquidity which is 7.3 percent of GDP, by buying securities in the secondary market and implementing reductions to banks’ reserve requirement ratio.

The BSP has also provided the government with P300 billion under a repurchase agreement and advanced P20 billion in dividend remittance despite that under its revised charter, it is no longer required to pay dividends.

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BSP Governor Benjamin E. Diokno BSP
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