The monetary operations of the Bangko Sentral ng Pilipinas (BSP) absorbed P2.047 trillion of financial system liquidity as of the end of the fourth quarter 2024.
The BSP mops up excess liquidity to control inflation and improve its management.
Its liquidity facilities include the term instruments such as the BSP securities facility or the BSP bills, and the term deposit facility (TDF). Both facilities accounted for a combined 63.6 percent of the total or P1.301 trillion of liquidity absorbed.
Out of the 63.6 percent, the securities facility took the bulk of financial system funds with 45.1 percent or P586.75 billion while the TDF mopped up 18.6 percent or P241.98 billion.
The BSP said in a report that the TDF and BSB bills’ interest rates have declined since the cumulative 50 basis points (bps) reductions in the policy rate in August and October 2024. At the end of last year, the BSP cut the policy rates by a combined 75 bps to 5.75 percent.
Meanwhile, the overnight reverse repurchase or RRP facility absorbed 28.5 percent of the total or P583.39 billion while the overnight deposit facility had 7.9 percent or P161.71 billion.
The BSP essentially removes money from banks to park these excess money with the BSP to earn fixed interest rates. The main objective is to control and manage inflation that the BSP is targeting will settle between two percent to four percent until 2028. In 2024, inflation averaged at 3.2 percent.
To improve its monetary operations, the BSP completed the phased implementation of the RRP reforms in September 2023 in line with the plan for an eventual shift to a variable-rate RRP auction format.
Phase 1 of the reform involved the change in the timing of the daily RRP operations to a morning schedule starting on May 29, 2023. Phase 2 was the shift from a fixed-volume to a full-allotment auction format for the RRP facility which took effect on July 14, 2023. Phase 3 saw a another shift from a fixed-rate to a variable-rate RRP auction format with predetermined offer volume by Sept. 8, 2023.
The BSP’s primary monetary policy instrument is the interest rate on its RRP facility. Through the RRP, the BSP borrows money from banks using government securities as collateral.
Earlier this month, the BSP amended trust entities’ access to its BSP bills facility to include investment management accounts not just unit investment trust funds to absorb more liquidity from the financial system. They may purchase securities in the secondary market since BSP bills are available for trading at the Philippine Dealing and Exchange Corp.
The BSP securities’ facility are open to all universal and commercial banks, thrift banks, digital banks, quasi-banks and trust entities.
The BSP restored its authority to sell its own bonds or securities after its charter was amended in 2019. Basically, the central bank auctions BSP bills to reduce money supply. It first introduced the securities facility in September 2020.