The Bangko Sentral ng Pilipinas (BSP) has reduced the rates on its Peso Rediscounting Facility following a similar cut on its target reverse repurchase (RRP) or the policy rate of 25 basis points (bps) last week.

By Monday, Aug. 19, the applicable rediscounting rate for the 1-90 day peso rediscounting maturity will be 7.5175 percent, up from its previous rate of 7.7675 percent.

Meanwhile, the 91 to 180-day tenor rate is also adjusted lower to 7.7850 percent from 8.0355 percent.

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 their 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 BSP said the EDYRF rate for US dollar-denominated rediscounting loans remains the same at 7.74410 percent, which was set last Aug. 8. This rate is for the 1-90 days, 91-180 days and 181-360 days.

For the yen-denominated EDYRF, the rates were also unchanged: 2.33500 percent for the 1-90 days, 2.38800 percent for the 91-180 days, and 2.4900 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 rediscounting facility is 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.

However, 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.

Last Thursday, the BSP’s policy-making arm, the Monetary Board, reduced the benchmark rate by 25 bps from 6.5 percent to 6.25 percent. This was the first time the BSP cut its key rate since Nov. 19, 2020.

With adjustments to the target RRP rate, the BSP also cut the rates on the overnight deposit and lending facilities to 5.75 percent and 6.75 percent, respectively.