The Bangko Sentral ng Pilipinas said Thursday it will publish on its website an overnight rate that will serve as a market reference with the cessation of the global use of the London Interbank Offered Rate.
It said the overnight rate uses as reference the secondary market rate on the 28-day BSP bill to compute an ON equivalent.
“This starts a broader initiative to enhance the BSP ON Reverse Repurchase Agreement facility. Once the enhancements are fully completed, the new rate from the RRP facility will become the ON reference rate,” it said in a statement.
The BSP said that in pursuit of its statutory mandates, it either siphons excesses or augments shortfalls in market liquidity via open market operations. The main tool is the ON RRP facility which is based on the BSP policy rate.
Under the existing framework, the RRP facility auctions a pre-announced amount at a fixed rate. The ongoing enhancements, such as the change in the auction window from 4 p.m. to 11 a.m., are designed to encourage more active liquidity management by the banks.
The expected result of these improvements is a variable rate from the ON RRP facility that would be more responsive to changing market conditions, it said.
The Bankers Association of the Philippines earlier voiced its support for the establishment of a new reference rate based on actively traded securities that result in high-volume transactions in the market.
The group said that compared to other markets in the region, the Philippines still strives to have a deeper and more vibrant securities market.
“Presently, we have the 5-year, 7-year and 10-year securities actively traded in the market — with the 12-year, 15-year, and 20-year bonds receiving strong interests from market participants and investors,” it said.
The BAP said these securities provide the banking industry sufficient support for pricing bank products such as loans, mortgages, investments and marking-to-market of banks’ own portfolios.
