BSP conducts more open market review
The Bangko Sentral ng Pilipinas (BSP) said Friday, Dec. 1, that it will continue to assess and enhance its open market operations (OMO) for a more effective monetary policy transmission.
“The BSP will continue to review the various features of its monetary tools to enhance monetary policy transmission as well as foster the development of the money market through better price discovery,” it said in a statement.
This follows its most recent amendments to its BSP securities facility which as of Nov. 30 is accessible to trust entities. Previously, trust entities which are banks’ trust departments and stand-alone trust firms, are only permitted to transact BSP bills in the secondary market.
Under a new circular, trust entities can participate in the securities facility primary market via its unit investment trust funds (UITFs). Trust entities will now join the banks in the auction of BSP bills every Friday.
According to the BSP, “expanding the eligible participants in the primary market of BSP securities enhances the BSP’s capability to manage liquidity in the system in order to guide short-term interest rates toward the policy rate.”
It added that “this will ensure the tradability and viability of BSP Securities as a highly liquid instrument, thus allowing for better price discovery and monetary policy transmission.”
The difference between a primary market and a secondary market is that the former is where the securities are first issues while the latter is where securities are traded by investors.
The BSP securities are monetary instruments that help the central bank to absorb liquidity in the financial system. It has added a 56-day tenor last June 30.
Trust entities have been given access to the BSP securities primary market to mop up more liquidity in the financial system.
Based on BSP Circular No. 1183, signed by BSP Governor Eli M. Remolona Jr. on Nov. 24, the Monetary Board approved amendments to the previous circular released in October 2022 to open up the securities facility to trust entities.
Last year, BSP only allowed trust entities to trade BSP securities via the secondary market through UITFs.
BSP bills are available for trading in the secondary market via the Philippine Dealing and Exchange Corp. Banks, quasi-banks and trust entities are eligible participants in the secondary market.
Last year, trust entities traded a total P1.8 trillion of BSP securities. Based on BSP data, a total P1.9 trillion of 28-day BSP bills were traded in the secondary market, of which P1.8 trillion were by trust entities. Meanwhile, the outstanding holdings of trust entities amounted to P135.5 billion.
Besides the BSP bills, the BSP’s OMO also have transactions in the overnight reverse repurchase or RRP facility, the term deposit facility, the overnight deposit facility and the overnight lending facility.
Before October last year, trust entities can only invest in the BSP securities through their UITFs if there are no non-resident participants in said UITFs.
The BSP said expanding the coverage of participants in the secondary market trading of BSP securities enhances the BSP’s capability to absorb liquidity and helps transform the BSP securities as a primary tool for liquidity management.
The measure is also aimed at enhancing the tradability and viability of BSP securities as a liquid facility and as a primary OMO or monetary operation.
As defined by the BSP, monetary operations refer to the buying/selling of government securities, lending/borrowing against underlying assets as collateral, acceptance of fixed-term deposits, foreign exchange swaps, and the use of other monetary instruments of the BSP aimed at influencing the underlying demand and supply conditions for central bank money.