BSP mops up P2.1T liquidity

Published June 21, 2021, 7:00 AM

by Lee C. Chipongian

The Bangko Sentral ng Pilipinas (BSP) said it has absorbed P2.1 trillion of market liquidity or excess money as of end-March to help keep inflation down.

Its term deposit facility (TDF) continues to be the BSP’s main liquidity management tool and as the BSP mops up more liquidity in the system, the short term money market rates move closer to the BSP policy rate.

The TDF, which is a weekly auction of two tenors, accounted for 39.4 percent of the total outstanding amount of liquidity absorbed by the BSP liquidity facilities, or about P827.40 billion.

The average weekly TDF offer volume was higher at P561.5 billion in the first quarter compared to P480.8 billion same time last year.

The average weekly bid-to-cover ratios for the 7-day and 14-day were 1.3x and 1.2x than offer volume, respectively, said the BSP in a report. “There were no 28-day term deposits offered during the quarter as the BSP started migrating funds from the 28-day TDF to 28-day BSP securities starting with the October 16, 2020 auction,” said the BSP.

Banks deposited their money with the BSP via overnight deposit facility (ODF) which absorbed 31.7 percent or P665.70 billion. Similar with the reverse repurchase (RRP) operation, the ODF removes excess liquidity in the system to control the rise in inflation.

The BSP said placements in its RRP operation, in the meantime, amounted to about P306.60 billion or 14.6 percent of absorbed liquidity. The average bid-to-cover ratio for the daily volume was 4.0x in the first three months of 2021.

Through the RRP, the BSP borrows money from banks using government securities as collateral. Hench the borrowing rate is called the RRP rate. As explained by the BSP, the “BSP’s borrowing has a contractionary effect on money supply, ‘removing the money from the banks and ‘parking’ it with the BSP,” it said.

The securities facility which was introduced last September 2020, siphoned off P300.30 billion of the P2.1 trillion or about 14.6 percent. During the quarter, the results of the weekly auctions of BSP bills reflected sustained strong demand amid ample liquidity in the financial system, with average bid-to-cover ratio for the quarter recorded at 1.4x, said the BSP in a report.

The BSP is only offering one tenor of BSP bills but central bank Governor Benjamin E. Diokno said last Thursday that they are currently reviewing the liquidity facilities and open market operations.

During the first quarter, inflation rate has stayed above four percent, exceeding the BSP’s two-four percent target. Absorbing excess liquidity is one of BSP’s price and stability monetary tools.

 
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