The Philippines asked lenders if they are willing to deposit funds with the central bank for as long as 56 days as policy makers seek greater control over liquidity conditions, according to a copy of a consultation paper obtained by Bloomberg News.
Bangko Sentral ng Pilipinas will initially offer 7-day and 28-day tenors for the term deposits, without allowing for early redemption, according to the consultation paper circulated to commercial banks in October. Deputy Governor Diwa Guinigundo confirmed in an e-mail Tuesday that the BSP would offer the shorter tenors but wouldn’t confirm that BSP is looking at the 56-day offer. Final tenors are still to be decided and the central bank is open to discussion, he said in the e-mail.
“Longer-term placements of banks keep liquidity longer with BSP and give flexibility for short-term calibration of liquidity in the market,” Guinigundo said in the e-mailed response to questions.
The new deposits are part of a shift by Bangko Sentral to an interest-rate corridor by the second quarter next year to boost potency of its benchmark rate in guiding the market, Governor Amando Tetangco Jr. said in September.
Finance Undersecretary Gil Beltran said market would accept Bangko Sentral’s move as a “viable investment option.”
“The BSP action is a monetary tool which is coordinated with DoF [Department of Finance] to ensure no unwarranted market impact. I am sure the market will accept the instrument as a viable investment option,” Beltran said in a text message to The Standard.
The central bank wants to steer market interest rates towards the policy rate by using a range of instruments to manage liquidity, according to the paper.
The size of auctions for the term deposits can be small at first, although in principle, larger and more frequent operations can be undertaken depending on market needs, according to the paper.
Other points made in the consultation paper include prohibiting foreign funds from investing in term deposits; early redemption for longer-term tenors (maturity of 28 days and longer) to provide banks with more options for short-term liquidity management; and implementing interest-rate corridor reforms gradually to prevent liquidity tightness. With Gabrielle H. Binaday
