BSP mops up P1.8-T excess liquidity


The Bangko Sentral ng Pilipinas (BSP) absorbed P1.809 trillion of excess liquidity from the financial system as of end-October with the BSP bills siphoning off most of the money supply.

The BSP mops up excess liquidity to control inflation and for active liquidity management. Basically, it removes money from banks to park these funds in the BSP’s interest-earning monetary operations and to “influence the underlying demand and supply conditions for central bank money.”

Of the P1.809 trillion, the BSP securities facility which is an auction of two tenors conducted every Friday, mopped up 40.6 percent or about P734.8 billion during the period.

Meanwhile, placements in the term deposit facility (TDF) totaled P458 billion or about 25.3 percent of the total. The TDF is transacted every Wednesday and it also features two tenors.

The BSP also have daily instruments  -- the overnight reverse repurchase (ON RRP) facility and the overnight deposit facility. The ON RRP accounted for P444.7 billion or 24.6 percent of total liquidity absorbed, while the deposit facilities had 9.5 percent or P172 billion.

Based on the bid coverage ratios and weighted average interest rates, the BSP said the auction results for the TDF and BSP bills during the review period “remain reflective of the pass-through of the BSP’s monetary tightening, with liquidity in the financial system remaining adequate.”

“Moreover, eligible counterparties have been adjusting their asset positions to tend to client requirements, manage their liquidity positions, and in anticipation of potential BSP rate hikes,” the BSP further noted.

BSP Deputy Governor Francisco G. Dakila Jr. has said that the BSP has more ammunition to effectively control inflation, liquidity and to guide market rates closer to the BSP rate.

As of end-October, the inflation rate remained elevated at a year-to-date average of 6.4 percent, way above the two percent to four percent target range for this year until 2025. For the year, the BSP forecasts six percent baseline consumer price index (CPI) and 6.1 percent risk-adjusted estimates.

Dakila said previously that compared to 2022, when global oil and non-oil prices were on the rise persistently amid higher interest rates particularly from the US Federal Reserve, the BSP worried not just over elevated inflation but also the exchange rate because it was disanchoring inflation expectations. In September and October last year, the exchange rate was at P58 to P59.

The BSP is also more flexible and effective in managing inflation compared to last year, he said, because of a new tenor in the securities facility and changes made to the RRP.

The BSP restored its authority to sell its own bonds or securities after its charter was amended in 2019. The central bank auctions BSP bills to reduce money supply.

Dakila said BSP’s new enhancements of its policy instruments should help improve the pass-through effect of benchmark rates and its open market operations.

As of Nov. 16, the BSP key rate stood at 6.5 percent. The BSP has raised the benchmark RRP rate by a cumulative 450 bps to anchor inflation expectations.