Stability,

liquidity in the financial system through the use of its auction-based facilities, as reflected in the improved alignment between the BSP’s policy rate and market interest rates.

Over the medium term, further refinements to the IRC shall also facilitate the development of the domestic capital and money markets, in line with the BSP’s broad financial market reform agenda. The use of auction- based facilities under the IRC has allowed the BSP to reduce its reliance on reserve requirements for liquidity absorption and management. Consequently, the BSP has commenced its phased and gradual reduction of reserve requirement ratios in March this year. The reduction in reserve requirement ratios is an operational adjust- ment that supports the BSP’s shift towards a more market- based implementation of monetary policy.

Moreover, with money market activity expected to increase over time as the scale of BSP active monetary operations expands, the resulting adjustment in money market rates will help support the price discovery process and the establishment of more accurate interest rate benchmarks. The BSP will therefore continue to review and improve the operational features of the IRC system to ensure greater flexibility and efficiency in conducting monetary operations.

Finally, the BSP continues to strengthen its macroeconomic surveillance capabilities by improving its data collection and database management processes and by enhancing its suite of analytical models in line with emerging trends in data analysis.