SOME volatilities in the domestic financial market may emerge once the term deposit auction facility is implemented in the early part of next year, Bangko Sentral ng Pilipinas Deputy Governor Diwa Guinigundo said Tuesday.
“… There could be some migration of funds from the SDA [special deposit account facility] to the higher interest rates of TDAF [term deposit auction facility],” Guinigundo said at the sidelines of the launching of the Parañaque Credit Surety Fund at the Bangko Sentral.
“There could be some volatilities but the difference of interest rates between the SDA and TDAF would not be significant because we have a lot of funds competing for a specific volume that we will be offering to the public or to the banks,” he said.
Guinigundo said the initial plan would be to conduct the auction once or twice a week depending on the liquidity requirements. He said the tenor would be seven to 28 days.
“All of these are subject to finalization because we want to consolidate the market reactions and feedbacks,” Guinigundo said.
The Bangko Sentral just recently concluded its consultations with financial industry stakeholders to get their inputs and feedbacks on the planned interest rate corridor implementation.
Guinigundo said bank presidents and trust officers welcomed the plan because they believed it would address the issue of excess liquidity in the system.
The Bangko Sentral plans to implement the system by the second quarter of 2016 in a bid to support the development of Philippine capital market.
Bangko Sentral Governor Amando Tetangco Jr. earlier said the system would introduce key changes in the framework for monetary operations designed to enhance the effectiveness of monetary policy.
He said these changes would help improve the transmission of policy rate adjustments to relevant money market rates, and ultimately to key macroeconomic variables. The IRC framework involves the establishment of the required infrastructure to effectively implement the monetary policy stance.
Infrastructure requirements include two standing liquidity facilities-deposit and lending—whose rates will form a corridor around the central bank’s policy rate, and will be supported by auction-based monetary operations.
The rate corridor aims to strengthen the signaling effect of policy rates and provide a system to allow easier price discovery part in the money market.
The Bangko Sentral, however, clarified that the shift to the interest rate corridor would not represent a change in the monetary policy stance, and was not expected to have a significant impact on the general level of interest rates in the Philippines.
The system isexpected to support the development of Philippine capital markets by providing an enabling environment for increased money market transactions as well as promoting more active liquidity management by individual financial institutions.