New market mechanism

BY

There's a meeting of the minds. Market players and the monetary authorities are no longer at loggerheads on setting up of the long-overdue new interest rate benchmark that will replace the Phiref (Philippine Interbank Reference Rate).

 

After more than a month after the demise of Phiref, an agreement in principle has been reached between the market practitioners and the Bangko Sentral ng Pilipinas (BSP) to establish the new benchmark by auctioning off the RRPs (reverse repurchase papers).

 

Under this new mechanism, the BSP will bid out RRPs without limitation. Banks and other financial institutions participating in the auction will be given the amount they bid, veering away from the usual auction amount of P2 billion.

 

Banks with voracious appetite for RRPs “can get everything they want for at a fixed rate.” The base rate, though, will be anchored on the key interest rate policy rate of the BSP.

 

It, too, means that the 28-day as well as the 54-day bills, which has yet to be floated, will no longer be used as the basis for the benchmarking as earlier considered.

 

The RRP auction will have its test run for its credibility and to determine its effectiveness for 30 trading days. Bank treasurers have accepted this new mechanism and are now, in fact, negotiating with the authorities for the possibility of shortening the back testing to 15 trading days.

 

The market is wanting to fasttrack the back testing as interest rate swap market is at the bottom pit with very minimal or even no transaction because corporates have no avenues to edge their exposure. The availability of financial products that they could hedge vanished with the demise of the Phiref.

 

Exactly in what form this will come about is still up in the air.

 

And here’s another development, I heard that the former deputy treasurer and president of First Metro Investment Corp. (FMIC), the investment arm of Metrobank, Roberto Juanchito “Jojo” T. Dispo, is in the running for member of the Monetary Board (MB).

 

His inclusion in the list of prospective MB members now brings to three the line-up that Malacanang must name to finally complete the seven-man policy-making board of the BSP.

 

Mr. Jojo is associated in several firms that include chairmanship of the Pontificio Collegio Filipino, PBC Capital Investment Corp. and Chairman for Prima Ventures Development Corp. as well as President & Chief Executive Officer for League One Finance & Leasing Corp., and President of Resiliency (SPC), Inc.

 

He joins National Treasurer Rosalia “Lea” de Leon and former Finance Undersecretary Romeo “Romy” Bernardo as MB member candidates.

 

The Palace is said to make the announcement “any moment” from now.

 

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