The Bangko Sentral ng Pilipinas (BSP) announced that it has reduced the rates on its peso rediscounting facility effective Dec. 11, Monday next week, ahead of the scheduled monetary policy meeting on Dec. 14.
Rediscounting is a BSP credit facility extended to qualified banks with active rediscounting lines. The facility helps banks meet their temporary liquidity needs by refinancing the loans they extend to their clients using the eligible papers of its end-user borrowers.
Starting Monday, the applicable rediscount rates for the BSP Peso Rediscount Facility are 7.7303 percent for the 1-90 day maturity, and 7.9606 percent for the longer-dated 91-180 day maturity.
The rate for the 1-90 day maturity is lower compared to the previous rate of 7.7330 while for the 91 to 180-day tenor, the previous rate was also higher at 7.9660 percent.
The peso rediscount rates are based on the BSP overnight lending rate. As of Nov. 16, the overnight lending rate is at seven percent.
The BSP reiterated that the “appropriate spread on rediscount rates, as may be determined by the BSP, may change periodically to complement the changes in the BSP’s monetary policy goals and reflect movements in market interest rates.”
Meanwhile, the Exporters’ Dollar and Yen Rediscount Facility (EDYRF) rates are based on the applicable benchmark rates.
The current EDYRF rate for US dollar-denominated rediscounting loans is 7.8700 percent for 1-90 days, 91-180 days and 181-360 days.
For the yen-denominated EDYRF, the rates are as follows: 2.09000 percent for the 1-90 days; 2.11500 percent for the 91-180 days; and 2.17980 percent for the 181-360 days.
The BSP did not disclose if there were new availments for the rediscounting facility for the month of September, October and November. It is assumed there were no takers for the facility since September this year despite that the BSP did not refer to it.
From January to August this year, the BSP did say previously that there were no banks that tapped the facility. The financial system is awash with cash and there was no need to borrow from the BSP for liquidity purposes.
At the end of 2022, total peso rediscounting loans amounted to P15.3 billion. Meanwhile, the last time banks availed of the EDYRF was in 2016.
The rediscounting facility operates as a temporary liquidity loan for banks to extend to their clients with eligible papers such as credit instruments including promissory notes, drafts or bills of exchange for commercial credits.
Production credits are also allowed which are used for production or processing of agricultural, animal, mineral, or industrial products. Other credits or special credit instruments such as, but not limited to, microfinance, housing loans, services, agricultural loans with long gestation period, and medium and long-term loans are also accepted.
At the moment, the BSP’s key rate or its overnight target reverse repurchase (RRP) rate is at 6.5 percent.
The BSP hiked its policy rate by 25 basis points (bps) last Oct. 26 in an off-cycle move to prevent inflation expectations from being disanchored to the target of two percent to four percent inflation.
As of end-November, the inflation rate is still above-target at 6.2 percent. The consumer price index fell to 4.1 percent in November from 4.9 percent in October and from 6.1 percent in September.
BSP Governor Eli M. Remolona said last Dec. 6 that come Dec. 14, they could either increase the rate or pause and hold the current 6.5 percent RRP rate.
As for the possibility of a rate cut, given that inflation is expected to drop below four percent in December, which would make it within the target range, the BSP chief said it is still premature to talk about loosening monetary policy.
Remolona said the BSP will stay hawkish – meaning it has a tightening bias for longer – for as long as the inflation rate is not consistently on the downtrend or firmly within the target range in a comfortable manner.
The latest BSP baseline full-year CPI forecast is six percent for 2023, 3.7 percent for 2024 and 3.2 percent in 2025.
The BSP has also started announcing a risk-adjusted inflation forecast which for this year is 6.1 percent, 4.4 percent in 2024 and 3.4 percent in 2025.
The risk-adjusted inflation is equivalent to the baseline inflation forecast plus the probability weighted impact of the different upside and downside risks to the inflation outlook. The risk-adjusted inflation forecasts are higher than the baseline forecasts.