BSP eyes soft launch of tradable securities in Q1

The Bangko Sentral ng Pilipinas (BSP) is launching its planned debt securities in the first quarter of next year as part of the central bank’s efforts to further strengthen the transmission of the policy rate movements to the rest of the economy.

BSP Deputy Governor Francisco Dakila Jr. said the central bank is scheduled to do a soft launch of the proposed issuance of securities between January and March next year.

“We need to maintain the flexibility with respect to the tenors, the timing so let us just wait for the official announcement. The timeline is the second quarter of next year, but of course we are aiming for a soft launching by the first quarter,” Dakila said.

Dakila explained the issuance of the securities would continue to be within the interest rate corridor (IRC) framework.

“So it will be one of the instruments that will be within that framework. We need to take a look at the whole, how much liquidity do you want to siphon off from the economy and from then on decide which instrument will take what portion of that adjustment,” Dakila said.

The BSP adopted the framework to guide short-term market rates toward the central bank’s policy rates. It is intended to help ensure that money market rates move within a reasonable close range around the BSP’s policy rate.

According to Dakila, the planned securities would give the central bank additional instruments on top of the term deposit auction facility (TDF) with tenors of seven, 14, and 28-days to enhance the transmission of the policy stance of the government.

“It will be one of the instruments that will go into the corridor system. The more instruments you have, the better is the transmission since you will be operating in different tenors,” Dakila said.

Dennis Lapid, officer-incharge of the BSP’s Monetary Policy Sub-Sector, said the proposed “tradeable” securities would have an advantage over the term deposits.

“These securities have an advantage over TDF and that they will be essentially tradeable in the market. So that will have an effect both in terms of the pricing and also that the fact that they will be adding to the pool of safe assets within the financial system,” Lapid said.

According to Lapid, there would be regularity in terms of the issuance of the proposed securities just like the term deposits wherein there is a quarterly calendar and the volume would be announced in a short period of time before the scheduled auction.

“The overall approach is that there will be some regularity in terms of the issuance of these securities. So we will be pre-announcing a calendar similar to what we are doing right now with the term deposits facility we have a quarterly calendar. Then we will have an announcement of the volume a short period before the actual auction operation,” Lapid said.

Lapid said the central bank is also coordinating with the Bureau of the Treasury in terms of the interconnection of the central registry of securities.

Republic Act 11211 or an act amending RA 7653 otherwise known as the new central bank act signed by President Duterte last February removed the condition that the issuance of certificates of indebtedness will be made only in cases of extraordinary movement in price levels.