The Bangko Sentral ng Pilipinas (BSP) will start offering 56-day BSP Bills on June 30, 2023, as part of its ongoing initiatives to enhance its monetary operations under the Interest Rate Corridor (IRC) framework.
An IRC is a system for guiding short-term market interest rates toward the central bank’s target or policy rate. It consists of a rate at which the central bank lends to banks (typically as an overnight lending rate) and a rate at which it takes deposits from them (deposit rate).
Through the IRC system, the BSP is able to generate a more effective policy signal for the economy as market rates closely track the policy target rate.
The Security Plant Complex (SPC), BSP’s currency production facility (IMAGE CREDIT: www.bsp.gov.ph)
In a standard corridor, the lending rate will be above the central bank’s target or policy rate (thereby forming an upper bound for short-term market rates), and the deposit rate will be below the central bank’s rate (thereby forming a lower bound).
In the end, the IRC system is intended to help ensure that money market interest rates move within a reasonably close range around the BSP’s policy rate. The close relationship between the policy rate and market interest rates provides the fundamental basis for monetary policy transmission.
56-day BSP Bill to be offered alongside the 28-day BSP Bill
As an additional tenor under the BSP Securities Facility, the 56-day BSP Bill will be offered alongside the 28-day BSP Bill.
Similar to the 28-day BSP Bills, the 56-day BSP Bill will be offered via auction to eligible counterparties, with the volume initially set in small amounts before being gradually scaled up as market liquidity conditions allow.
The initial offer volume for the 56-day BSP Bill will be announced two days before the inaugural auction on June 30, consistent with the current practice for the 28-day BSP Bill.
IMAGE CREDIT: www.bsp.gov.ph
The introduction of the 56-day BSP Bill expands the range of BSP’s term instruments and increases the BSP’s flexibility to respond to changing liquidity conditions while providing additional guidance to short-term market interest rates.
Its introduction supports the BSP’s efforts towards a more flexible and market-based approach to managing liquidity in the financial system, in line with its overall thrust to promote price and financial stability.
