IMF pushes for better liquidity management, debt pricing and supply

THE BANGKO SENTRAL ng Pilipinas (BSP) can further improve liquidity management and debt pricing and supply in the country by developing more instruments and collaborating with the Treasury for its open market operations, the International Monetary Fund (IMF) said.

The IMF, in its staff report for the Philippines following its Article IV consultation, said the BSP could further refine its operational framework as it aims to reduce the reserve requirement ratio (RRR).

In June, the BSP cut the RRR for big banks by 250 basis points (bps) to 9.5%. It also lowered the ratio for digital banks by 200 bps to 6% and by 100 bps for thrift banks, and rural and cooperative banks to 2% and 1%, respectively.

However, the adjustment in reserve requirements coincided with the expiration of a pandemic relief measure and was combined with an introduction of the 56-day securities, which mopped up any excess liquidity from the RRR cuts.

“In the future, the BSP could manage banking system liquidity more flexibly by expanding the use of market-based operations like reverse repurchase operations (RRPs). This approach is now viable due to large-scale purchases of government bonds during the COVID-19 (coronavirus disease 2019),” the IMF said.

The IMF also noted that the BSP has shifted to a variable rate format in the auction for the overnight RRP facility in September, which introduced a formal overnight RRP rate and renamed the BSP’s key policy rate to the target RRP rate.

“As the BSP is exiting from the extraordinary liquidity support measures introduced during the pandemic and letting maturing treasury securities run-off, its communication of the desired size of its balance sheet in normal times including the use of its portfolio of treasury securities would be helpful,” it said. —