The Bangko Sentral ng Pilipinas (BSP) has mopped up the P2 trillion excess liquidity it has injected in the financial system last year to ensure market rates are in line with the BSP policy rate.
The BSP said one of its key monetary operations, the overnight deposit facility (ODF), was the main catch basin for the excess liquidity and absorbed P1.14 trillion of the P2 trillion or 57 percent of the total.
The weekly term deposit facility (TDF), in the meantime, mopped up 16.3 percent or P326 billion while its reverse repurchase facility (RRP) absorbed 15.5 percent or P310 billion.
Pre-pandemic, the RRP facility same time in 2019 had a larger share about 35.7 percent of the total outstanding liquidity while the ODF and TDF took care of the bulk of the total or 64.3 percent.
At the start of 2020, in the first quarter or before the lockdowns were imposed mid-March last year, BSP liquidity facilities were only absorbing about P697.3 billion, of which 44.8 percent were placed in the RRP facility, while ODF and the TDF accounted for 43.7 percent and 11.5 percent of the total, respectively.
When the government implemented the first phase of the community quarantines on March 17, 2020, the BSP cancelled the TDF auction and there were no TDF offerings for the rest of March until April 15 to make sure banks have the liquidity it will require to service the funding needs of businesses and households.
While the TDF was suspended, the RRP and standing overnight deposit and lending facilities continued its operations amid the strictest period of the lockdowns.
By the second quarter, the BSP was absorbing P1.5 trillion of excess liquidity with the BSP calibrating monetary operations to provide short-term peso liquidity amid the pandemic.
The BSP also gradually reopened the TDF but it was on a reduced volume of offering. On average, the daily placements in the ODF in the second quarter stood at P560.25 billion from P226.56 billion in the first quarter.
At the end of the third quarter 2020, the BSP’s liquidity facilities were siphoning off P1.6 trillion of excess liquidity, of which the TDF has 40.7 percent of the total and the ODF with 40.5 percent.
The BSP securities facility, first introduced last September 18, accounted for 11.2 percent or P224 billion of the P2 trillion liquidity absorbed by the BSP for the whole of 2020.
BSP bills are offered only as 28-day tenor. It cancelled the 28-day TDF on October 16 to start “migrating funds” to the securities facility of the same tenor.
The securities facility has been well received by the market, according to BSP Deputy Governor Francisco G. Dakila Jr. He has noted that results of the weekly auctions – every Friday while TDF is every Wednesday – continue to reflect sustained strong demand amid ample liquidity in the financial system.
In the last quarter of 2020, BSP bills subscriptions totaled P1.42 trillion or 1.7 times the P840 billion offer.
Before September 2020, the last time BSP issued its own debt securities was July 1993.