The Bangko Sentral ng Pilipinas (BSP) has siphoned off P1.624 trillion of liquidity from the financial system as of end-July with its securities and deposit facilities acting as catch basins for excess liquidity.
The BSP mops up excess liquidity to control inflation and for active liquidity management. Basically, it removes money from banks to park these funds in the BSP’s interest-earning monetary operations to “influence the underlying demand and supply conditions for central bank money.”
The BSP’s open market facilities actively mopped up liquidity via its securities or bills facility and term deposit facility (TDF).
As of July 31, 2024, the BSP bills and TDF accounted for a combined 70.5 percent or P1.144 trillion of the P1.624 trillion total absorbed liquidity.
Of the 70.5 percent, the BSP bills absorbed 58.4 percent or P948.416 billion while the TDF accounted for 12.1 percent or P196.504 billion.
The BSP has other open market operations such as the overnight reverse repurchase (RRP) facility and the overnight deposit facility (ODF).
About 20.9 percent or P339.416 billion were mopped up by the overnight RRP facility while the ODF received 8.6 percent or P139.664 billion of the total.
The BSP’s monetary operations involve the following: the buying and selling of government securities; lending and borrowing against underlying assets as collateral; acceptance of fixed-term deposits; and foreign exchange swaps.
When the BSP shifted to the interest rate corridor (IRC) system in 2016, it introduced the TDF and the BSP bills. The IRC guides short-term market rates closer to the target RRP policy rate.
At the moment, the TDF has two tenors, the 7-day and 14-day, while the BSP bills have the 28-day and 56-day maturities.
The BSP can offer both BSP bills and BSP bonds but it is currently auctioning only BSP bills due to market preference for shorter tenors.