The Bangko Sentral ng Pilipinas (BSP) plans to address the expected excess liquidity in the financial system by offering 56-day securities on June 30, in addition to the regular auction of the 28-day tenor.
This move aims to expand the range of term instruments available under the BSP’s interest rate corridor (IRC) framework, which was introduced in 2016.
By introducing the new tenor, the BSP aims to enhance its flexibility in responding to changing liquidity conditions and provide additional guidance to short-term market interest rates.
The longer-term securities will enable the BSP to adopt a more market-based approach to managing liquidity, especially following its anticipated reduction of banks’ reserve requirements (RR) by the end of this month.
This RR ratio cut is expected to inject an additional P250 billion to P300 billion into the money supply.
The 56-day BSP bills will be offered through auction to eligible counterparties. The initial volume will be set at small amounts and gradually increased as market liquidity conditions permit.
The BSP will announce the specific offer volume two days before the inaugural auction on June 30, following the current practice for the 28-day BSP bills. This strategic approach allows the BSP to carefully manage liquidity while ensuring market stability and effectiveness.
