BSP approves add'l liquidity boosters
Published Apr 12, 2020 12:00 am
By Lee C. Chipongian
To avoid a liquidity crisis, the Bangko Sentral ng Pilipinas (BSP) has increased the eligible securities it buys and narrowed the overnight reverse repurchase (RRP) offering to encourage the shifting of funds as among the latest measures to boost money supply in the financial system.
MB file photo.
Liquidity-enhancing measures are intended to boost market confidence, ensuring there will be adequate money supply in the financial system while the country is dealing with a stalled economy due to the virus pandemic lockdowns.
Among the latest measures taken by the BSP is to widen the list of eligible government securities it buys in the secondary market. Starting April 8, the BSP has expanded the range of eligible securities to cover all peso-denominated government securities issuances.
“The measure is aimed at reassuring market participants of demand for government securities should they need to liquidate their holdings, thus encouraging participation in the government securities auctions,” said the BSP.
The central bank opened a daily one-hour window from 9:30-10:30 a.m. and this window will stay open until June 2020 “or until market conditions return to normal.” The BSP buys bonds or debt securities from the market to affect the money supply in the banking system.
Another measure is the reduction in the RRP volume beginning April 8. A repurchase transaction increases liquidity in that the BSP buys government securities from a bank with a commitment to sell them back at a time and rate agreed, but a reduced offering will pull back any liquidity impact.
“The BSP will scale down its daily overnight RRP volume offering as necessary depending on liquidity conditions to encourage counterparties to lend in the interbank market or re-channel their funds into other assets such as government securities or loans,” said the central bank.
The BSP’s buying and selling of government securities and its RRP facility are part of its open market operations to manage liquidity in the financial system.
The BSP said it is necessary to take action and implement extraordinary measures to aid the National Government’s fight against the spread of COVID-19. It said that by “ensuring sufficient liquidity in the financial system, the BSP aims to assist our financial intermediaries in responding to the needs of Filipino households and businesses amid these challenging times.”
Last March 23, the BSP already committed to loan the govern¬ment ₱300 billion via a repurchase agreement wherein the BSP will purchase government securities from the Bureau of the Treasury (BTr).
Under the term of the repo agreement, after three months, BTr will buy back the government securities from the BSP for the same amount at zero interest. If “conditions so warrant” the term can be extended by another three months. The government is spending ₱300 billion to combat the health crisis.
Sufficient liquidity
but there’s some volatility
The impact of the COVID-19 outbreaks is sweeping across the globe and in the Philippines, the BSP has noted “turbulence” in financial markets which has “constrained liquidity.”
“(The BSP) has observed some volatility in the domestic financial market in recent weeks, as uncertainty over the impact of the health crisis continues to dampen market sentiment,” said the BSP.
“While the BSP believes that the Philippine financial system remains sound with adequate capital and liquidity buffers, we also recognize the need to shore up market confidence to ensure the proper functioning of the financial market and prevent serious repercussions on the economy over the medium term,” the BSP added.
So far, besides the two latest liquidity-boosting measures, the BSP has done the following as economic stimulus and in response to the threat of a liquidity crunch: to reduce the interest rates by a cumulative 75 basis points (bps); cut the reserve requirement ratio by 200 bps and releasing more than ₱200 billion as extra bank cash; and implemented the timely suspension of the term deposit facility auctions for certain tenors.
The BSP also approved the temporary reduction in the term spread on the peso rediscounting loans relative to the overnight lending rate to zero, while also implementing “time-bound relaxation of various regulations pertaining to compliance reporting, calculation of penalties on required reserves, and single borrower limits.”
BSP Governor Benjamin E. Diokno, in several interviews, has said that the economy could go into a technical recession this year, or two quarters of negative growth, and maybe post a recovery in the last quarter of 2020.
MB file photo.
Liquidity-enhancing measures are intended to boost market confidence, ensuring there will be adequate money supply in the financial system while the country is dealing with a stalled economy due to the virus pandemic lockdowns.
Among the latest measures taken by the BSP is to widen the list of eligible government securities it buys in the secondary market. Starting April 8, the BSP has expanded the range of eligible securities to cover all peso-denominated government securities issuances.
“The measure is aimed at reassuring market participants of demand for government securities should they need to liquidate their holdings, thus encouraging participation in the government securities auctions,” said the BSP.
The central bank opened a daily one-hour window from 9:30-10:30 a.m. and this window will stay open until June 2020 “or until market conditions return to normal.” The BSP buys bonds or debt securities from the market to affect the money supply in the banking system.
Another measure is the reduction in the RRP volume beginning April 8. A repurchase transaction increases liquidity in that the BSP buys government securities from a bank with a commitment to sell them back at a time and rate agreed, but a reduced offering will pull back any liquidity impact.
“The BSP will scale down its daily overnight RRP volume offering as necessary depending on liquidity conditions to encourage counterparties to lend in the interbank market or re-channel their funds into other assets such as government securities or loans,” said the central bank.
The BSP’s buying and selling of government securities and its RRP facility are part of its open market operations to manage liquidity in the financial system.
The BSP said it is necessary to take action and implement extraordinary measures to aid the National Government’s fight against the spread of COVID-19. It said that by “ensuring sufficient liquidity in the financial system, the BSP aims to assist our financial intermediaries in responding to the needs of Filipino households and businesses amid these challenging times.”
Last March 23, the BSP already committed to loan the govern¬ment ₱300 billion via a repurchase agreement wherein the BSP will purchase government securities from the Bureau of the Treasury (BTr).
Under the term of the repo agreement, after three months, BTr will buy back the government securities from the BSP for the same amount at zero interest. If “conditions so warrant” the term can be extended by another three months. The government is spending ₱300 billion to combat the health crisis.
Sufficient liquidity
but there’s some volatility
The impact of the COVID-19 outbreaks is sweeping across the globe and in the Philippines, the BSP has noted “turbulence” in financial markets which has “constrained liquidity.”
“(The BSP) has observed some volatility in the domestic financial market in recent weeks, as uncertainty over the impact of the health crisis continues to dampen market sentiment,” said the BSP.
“While the BSP believes that the Philippine financial system remains sound with adequate capital and liquidity buffers, we also recognize the need to shore up market confidence to ensure the proper functioning of the financial market and prevent serious repercussions on the economy over the medium term,” the BSP added.
So far, besides the two latest liquidity-boosting measures, the BSP has done the following as economic stimulus and in response to the threat of a liquidity crunch: to reduce the interest rates by a cumulative 75 basis points (bps); cut the reserve requirement ratio by 200 bps and releasing more than ₱200 billion as extra bank cash; and implemented the timely suspension of the term deposit facility auctions for certain tenors.
The BSP also approved the temporary reduction in the term spread on the peso rediscounting loans relative to the overnight lending rate to zero, while also implementing “time-bound relaxation of various regulations pertaining to compliance reporting, calculation of penalties on required reserves, and single borrower limits.”
BSP Governor Benjamin E. Diokno, in several interviews, has said that the economy could go into a technical recession this year, or two quarters of negative growth, and maybe post a recovery in the last quarter of 2020.