The Bangko Sentral ng Pilipinas (BSP) is studying the issuance and timing of when to offer 56-day securities or BSP bills. BSP Governor Felipe M. Medalla said there is no specific time yet on when they could issue the 56-day tenor. “No definite date yet,” he told Manila Bulletin. Medalla said it is possible a 56-day BSP bills will compete with the Bureau of the Treasury’s (BTr) treasury bills (T-bills). The 56-day tenor is too close to the 91-day T-bills. “Of course, people prefer higher yielding bills,” he said. “But T-bills are more easy to trade and some institutions (e.g. Land Bank of the Philippines) prefer T-bills,” said the BSP chief. The BSP has previously negotiated for a term of one-year for the BSP bills. This was supposed to be a compromised tenor that both the BSP and the BTr could agree on. In the end, the BSP settled for 28-days. Unlike the government which sells bonds for financing, the BSP bills are used for monetary management. The BSP had earlier preferred one-year bills because the longer the maturity, the lesser liquidity the BSP will siphon off the market. Meantime, T-bills are sold as 91-day, 182-day and one-year tenors. The 28-day BSP securities facility – which are negotiable and marketable -- used to be the 28-day term deposit facility or TDF. At the moment the TDF offer shorter-dated maturities such as 7-day and 14-day. Last May 18, after announcing a pause in its nine straight rate hikes, Medalla said they plan to no longer ration the reverse repurchase (RRP) facility and to increase the volume of its open market operations, such as the TDF and securities auction, to be able to mop up a larger volume of excess liquidity when they cut banks’ reserve requirements (RR). The central bank could reduce the RR ratio by 200 basis points (bps) or from 12 percent to 10 percent on or before June 30 this year to offset the impact of cancelling a relief measure which allowed banks to use loans to micro, small and medium enterprises and large enterprises that are not affiliated with conglomerates as alternative compliance with the RR rules. If an RR ratio cut is not enough, the BSP is prepared to increase the volumes of its weekly auctions to neutralize the impact of additional liquidity and increased money supply that could be inflationary. The BSP’s primary monetary policy instrument is the interest rate on its RRP facility. But BSP has the option to reduce banks’ RR to control inflation and to siphon off liquidity via the BSP bills and TDF. Currently, inflation is still high and above-the-target. As for the BSP rate, it is at 6.25 percent after a cumulative hike of 425 bps. Aside from raising the policy rate, the BSP mops up liquidity to manage inflation. As of the first week of May, the BSP has absorbed P1.52 trillion of financial system liquidity through its liquidity facilities. The BSP bills mopped up about 30.9 percent or P470 billion of this amount. Meanwhile, TDF placements accounted for 29.2 percent or P443.4 billion. The overnight RRP facility and the overnight deposit facility absorbed 20.1 percent and 19.9 percent respectively, at P305 billion and P301.8 billion. The BSP in a report said the auction results for the BSP bills and TDF continue to be “reflective of the pass-through of the BSP’s monetary tightening.” “Liquidity in the financial system remains adequate and eligible counterparties have been shifting their assets toward the BSP securities amid the need to service client requirements,” said the BSP.