The Bangko Sentral ng Pilipinas (BSP) has adjusted higher the rates it charges on its Peso Rediscounting Facility effective on Tuesday, July 9.

The applicable rediscounting rate for the 1-90 day maturity is increased to 7.7661 percent compared to 7.6134 percent in June.

The 91 to 180-day tenor is also higher at 8.0322 percent versus 7.7686 percent last month.

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.

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 by July 9 will be 7.82190 percent for 1-90 days, 91-180 days and 181-360 days.

For the yen-denominated EDYRF, the rates will be as follows: 2.22100 percent for the 1-90 days; 2.27884 percent for the 91-180 days; and 2.37625 percent for the 181-360 days.

The BSP said 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.”

The BSP no longer disclose if there are new availments for the rediscounting facility, not since September 2023. One of the reasons why banks are not tapping the facility is because the financial system is liquid and no need to borrow from the BSP for liquidity requirements.

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.

The rediscounting window is not competing with existing rediscounting facilities in the market.

The BSP uses its rediscount facility as an instrument to influence the volume of credit in the financial system and to act as the: short-term safety valve for the banking system when the aggregate supply for reserves fall short of demand; or when banking institutions meet an unexpected shortage of reserves or funding for their temporary liquidity needs.

As of June 27, the BSP’s target reverse repurchase (RRP) rate which is the policy rate is at 6.5 percent while its ON lending rate is seven percent.  

BSP Governor Eli M. Remolona Jr. reiterated intentions to cut the 6.5 percent policy rate by 50 basis points (bps) this year, starting off with 25 bps in the next meeting, Aug. 15.