Bangko Sentral ng Pilipinas Introduces Variable-Rate Auctions for Overnight Funds
The Bangko Sentral ng Pilipinas (BSP) has announced its plans to implement variable-rate auctions for overnight funds in an effort to enhance the transmission of monetary policy. This shift to a new format with a pre-determined offer volume will take effect from September 8, 2023.
The BSP emphasized that these changes are part of its ongoing reforms, which have been in progress since the adoption of the interest rate corridor framework in 2016. It clarified that these reforms are mainly operational in nature and do not indicate any shift in the BSP’s monetary policy stance.
In a statement released on Monday, the BSP stated, These initiatives are geared towards enhancing the transmission of monetary policy by strengthening the link between monetary policy strategy and implementation. 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 BSP also noted that these changes align its implementation of monetary policy with best practices in other jurisdictions. Going forward, the BSP’s monetary policy rate will be referred to as the target RRP rate, through which the BSP will signal its monetary policy stance.
This move towards variable-rate auctions for overnight funds showcases the BSP’s commitment to improving the efficiency and effectiveness of its monetary policy transmission mechanisms. By adopting a market-determined interest rate, the BSP aims to provide market participants and monetary authorities with valuable insights into the prevailing cost and demand for overnight funds in the financial system.
While these changes are operational in nature, they are an important step towards strengthening the link between monetary policy strategy and implementation. By aligning its practices with international standards, the BSP aims to enhance its ability to effectively communicate and implement monetary policy measures. As the Philippine economy continues to evolve, these reforms will play a crucial role in supporting its growth and stability.
