BSP to fine-tune IRC framework

The Bangko Sentral ng Pilipinas (BSP) continues to push refinements in the framework introduced in June last year to bring market rates closer to the policy rates.

BSP officer-in-charge Diwa Guinigundo said the regulator is discussing possible revisions in the interest rate corridor (IRC) system with major stakeholders in the industry.

The BSP formally adopted the system in June last year as a framework for conducting its monetary operations. The IRC is a system for guiding short-term market rates towards the BSP policy interest rate or the overnight reverse repurchase rate.

“Within the year we should be able to provide some indications on how to move the IRC forward. But right now, it’s very clear that the IRC is quite effective,” he said.

Guinigundo pointed out the volatility of market interest rates has been reduced while the market rates are now within the IRC range.

The BSP made an operating adjustment in June last year with the shift to the IRC system setting the overnight lending rate at 3.5 percent, the overnight reverse repurchase rate at three percent, and the overnight deposit rate at 2.5 Guinigundo percent.

The BSP deputy governor said authorities are discussing possible changes in the term deposit auction facility (TDF) currently composed of seven- and 28-days term deposits.

“We are consulting with the industry. We considered additional tenors, among others, but we’re still discussing this with our counterparts,” he said.

The BSP lowered the volume of the TDF for the first time since it was launched as banks continued to shift excess liquidity to lending. The volume of the 28-days term deposits was cut to P110 billion from P140 billion while the size of the seven-day term deposits was retained at P40 billion.