MANILA -The Bangko Sentral ng Pilipinas (BSP) will shift to a variable-rate format with a predetermined offer volume in its overnight reverse repurchase (RRP) auction as part of efforts to enhance its tools to control money supply.
In an RRP operation, the BSP acts as the seller of government securities and the bank’s payment to the BSP mops up the supply of money in circulation.
The BSP said in a statement that the changes in the RRP facility were part of its set of planned reforms dating back to the adoption of the interest rate corridor framework in 2016.
Such changes are largely operational in nature and do not constitute any shift in the BSP’s monetary policy stance. Instead, these initiatives aim to enhance the transmission of monetary policy.
“The shift to the variable-rate auction format will also help strengthen the price discovery process by providing market participants and monetary authorities alike a market-determined interest rate that conveys the prevailing cost of and demand for overnight funds in the financial system,” the central bank said.
“With these changes, the BSP further aligns its implementation of monetary policy with the best practices in other jurisdictions,” it added.
With the shift to a variable-rate auction format, the BSP’s monetary policy rate will be called the “Target RRP Rate,” which will continue to be after each meeting of the Monetary Board on the BSP’s monetary policy stance. The RRP facility remains the BSP’s primary monetary policy instrument.
—Ronnel W. Domingo INQ
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