The Bangko Sentral ng Pilipinas’ (BSP) monetary mopping-up operations have retrieved P1.4 trillion of the total liquidity circulating in the financial system as of the middle of the third quarter.
As of August 5, the BSP’s securities facility has absorbed P651 billion of market liquidity, or 46.5 percent of the total, the BSP said.
The open market operations effectively kept the overnight reverse repurchase (RRP) rate aligned or consistent with the policy rate, or the target RRP rate, it said.
BSP liquidity facilities include term instruments such as the BSP securities facility, or the BSP bills, and the term deposit facility (TDF). The BSP’s primary monetary policy instrument is the interest rate on its RRP facility.
According to the BSP, the overnight RRP facility mopped up 27.6 percent, or P386 billion, as of August 5. Meanwhile, the overnight deposit facility and the TDF absorbed 16.8 percent and 9.1 percent respectively, at about P235 billion and P127 billion.
The BSP is a catch basin for excess liquidity to control inflation and improve its management. It is also safer for banks to place money in the BSP because it has fixed interest rates.
The TDF and BSB bills’ interest rates have declined due to the cumulative 150-basis point (bps) reduction in the policy rate since August 2024. The last one was a 25 bps cut on August 28 this year.
During the July 30 TDF auction, rates dropped to 5.2521 percent for the 7-day tenor and 5.3009 percent for the 14-day facility.
The rates for BSP bills on August 1 also declined, settling at 5.3842 percent for the 28-day tenor and 5.3910 percent for the longer-dated 56 days.
Domestic liquidity and bank lending continued to grow with the rate cuts and reduction in banks’ reserve requirements.
The universal and commercial banks’ outstanding loans expanded by 11.8 percent year-on-year to P13.57 trillion in July, while money supply grew 6.2 percent year-on-year to P18.6 trillion.
To improve its monetary operations, the BSP completed the phased implementation of the RRP reforms in September 2023.
Phase 1 changed the timing of the daily RRP operations while Phase 2 was the shift from a fixed-volume to a full-allotment auction format for the RRP facility. Phase 3 involved the shift from a fixed-rate to a variable-rate RRP auction format.
The BSP fully restored its authority to sell its own securities after its charter amendments in 2019.
First introduced in September 2020, the securities facility is open to all universal and commercial banks, thrift banks, digital banks, quasi-banks and trust entities.
The TDF is also one of BSP’s main liquidity management tools. It was first launched in 2016 as part of the interest rate corridor system.
