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BSP siphons off P1.5 trillion in excess liquidity

THE BANGKO SENTRAL ng Pilipinas (BSP) has siphoned off P1.522 trillion in excess money supply this year, according to its latest monetary policy report.

“As of Aug. 2, the total outstanding amount absorbed in the BSP liquidity facilities stood at about P1.522 trillion,” the central bank said.

Broken down, about 38.5% or P585.4 billion were absorbed through the BSP Securities Facility via BSP Bills (BSPB). The maiden issuance of the 56-day BSPB was on June 30.

The central bank absorbs liquidity from banks through the BSP’s monetary operations, such as the term deposit facility (TDF).

About a quarter or around P376.2 billion of total placements were from the TDF.

Meanwhile, placements in the BSP’s overnight reverse repurchase (RRP) facility stood at P340.3 billion (22.4%) and the overnight deposit facility amounted to P220.1 billion (14.5%).

“The auction results for the TDF and BSPB during the review period reflected the pass-through of the BSP’s monetary tightening, with liquidity in the financial system remaining adequate,” the central bank said.

“Moreover, eligible counterparties have been shifting their assets towards the BSP Securities amid the need to service client requirements,” it added.

The weighted average interest rate (WAIR) for the seven-day term deposits rose to 6.5888% on Aug. 2 from 6.5806% previously. The WAIR for the 14-day papers went up to 6.5903% from 6.5864% in the previous auction.

As for the BSP bills, the WAIR for the 28-day BSPB increased to 6.7108% on Aug. 4 from 6.7048% a week ago. The WAIR for the 56-day BSPB was at 6.7356%, above the previous auction’s 6.6999%.

Meanwhile, the BSP on July 14 shifted to the fixed-rate, full-allotment auction format for its daily RRP auctions. It has awarded an average of P376.149 billion since then.

On a monthly basis, the awarded amount for August stood at P402.847 billion, higher than the P366.441 billion in July.

The BSP said it has continued to refine its monetary policy instruments as part of its initiatives to enhance monetary operations under the interest rate corridor framework.

In June, the BSP introduced a longer tenor under the BSP Securities Facility to complement the 28-day BSP Bill. The BSP also implemented two of the three phased refinements under the series of reforms to the overnight (O/N) RRP facility.

“Market reception to the 56-day BSPB has been favorable, with frequent oversubscriptions observed since the maiden issuance in June. For the first seven auctions, the bid-to-cover ratio (BCR) ranged from 0.762 to 2.082 times the total offered volume, with an average BCR of 1.103 times the offered amount,” the BSP said.

The main objective of the BSP’s monetary operations is to control and manage inflation, which the central bank expects to average at 5.6% this year, 3.3% in 2024, and 3.4% in 2025.

Headline inflation slowed to 4.7% in July, its sixth straight month of decline. Year to date, inflation averaged 6.8%, still well above the BSP’s 2-4% target.

Last week, the Monetary Board extended its hawkish pause for a third straight meeting, keeping the key rate at a near 16-year high of 6.25%. — K.B. Ta-asan

Neil Banzuelo

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