The Bangko Sentral ng Pilipinas (BSP) has lowered the rates on its soon-to-be replaced Peso Rediscounting Facility to 7.3920 percent for the 1-90 day maturity and 7.5340 percent for the longer 91-180 loans.
The new rediscounting rates, which took effect this week, was lower compared to September’s 7.4226 percent for the 1-90 day maturity and 7.5952 percent for the 91-180 day tenor.
The reduced rediscounting rates reflect the easing monetary policy stance of the central bank. Last Aug. 15, the BSP’s policy-making arm the Monetary Board reduced the benchmark rate by 25 basis points from 6.5 percent to 6.25 percent. This was the first time the BSP reduced its key rate since Nov. 19, 2020.
The BSP also cut the rates on the overnight deposit and lending facilities to 5.75 percent and 6.75 percent, respectively, in August.
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, and drafts or bills of exchange for commercial credits. It is also a credit facility to qualified banks with active rediscounting lines.
The peso rediscount rates are based on the BSP overnight lending rate, while the US dollar and Japanese yen rediscount rates under the Exporters’ Dollar and Yen Rediscount Facility (EDYRF) are based on applicable benchmark rates
The EDYRF rate for US dollar-denominated rediscounting loans are 7.12840 percent for the 1-90 days, 91-180 days and 181-360 days. For the yen-denominated EDYRF, the rates are as follows: 2.34386 percent for the 1-90 days; 2.39500 percent for the 91-180 days; and 2.45750 percent for the 181-360 days.
Last month, the BSP announced that it is replacing the rediscounting facility with the discount window facility (DWF). It will take effect in December.
Under the DWF, banks can now directly offer government-issued securities and central bank bills in exchange for advances against these securities.
BSP Circular No. 1202 which will implement the DWF, wants the new facility to influence the volume of credit. Before the circular, the BSP only rediscounts loans with government securities as additional collateral.
The central bank clarified that banks with existing rediscounting line may continue with the rediscounting of eligible credit instruments until they expire.
However, banks with existing rediscounting line planning to avail of advances against securities issued by the government and the BSP will have to apply for a DWF line. This will be treated as a new application.
The DWF will cover the following: rediscounting of credit instruments of banks' end-user borrowers; and advances against securities issued by the National Government and the BSP.
This means DWF lines approved under the new circular can be tapped by banks either by rediscounting loans or by offering their government securities and BSP securities for advances.
In addition, banks can tap existing rediscounting lines until these lines expire a year after their effectivity, but only for rediscounting loans, said the BSP.
The DWF will have new credit scores under the Credit Information System or CRIS as well as additional application procedures for the DWF line.
Based on the new circular, the amount of DWF line will depend on a bank’s total credit score under the CRIS guidelines, which ranges from 25 percent to 100 percent of adjusted capital.
The term of the line is one year “unless sooner cancelled, suspended, amended or extended” by the BSP. The line is also renewable annually.
Under the DWF, the BSP will accept the unencumbered marketable debt instruments/securities issued by the government such as treasury bills or bonds with maturities of not more than 10 years from date of advance; and securities issued by the BSP.
The loan value is up to 80 percent of the current market value of the government and BSP securities. The maturity of DWF availments is up to 180 days from date of advance, but not beyond the maturity date of the securities.
As to the interest rates, the peso DWF will be based on the BSP overnight lending rate plus a spread depending on the term of the loan as may be determined by the BSP.
For the US dollar and Japanese yen DWF, the interest rates will be based on the applicable benchmark rate plus an appropriate spread depending on the term of the loan. The spread between these two rates may also vary to reflect movements in the market interest rates and to achieve monetary policy objectives, said the BSP.