BSP Governor Benjamin Diokno
MANILA – Market players will get additional options for risk-free securities with the planned debt papers issuance by the Bangko Sentral ng Pilipinas (BSP) within the third quarter this year.
During the memorandum of agreement (MOA) signing between the BSP and the Bureau of the Treasury (BTr) at the central bank Wednesday, BSP Governor Benjamin Diokno said the BSP debt instruments are intended “to manage liquidity in the financial system to support monetary policy transmission.”
He said the funds will remain with the central bank until its maturity, and the tenors will be based on market appetite and the domestic liquidity situation.
Diokno said the BSP’s debt securities are not intended to compete with that of the BTr since proceeds of the ones issued by BTr will be used to fund government operations.
“In particular, the issuance of BSP securities is expected to facilitate the construction of (a) benchmark yield curve at the short end, which the market can refer to when pricing loans to clients and debt instruments,” he said in a virtual briefing for stakeholders and journalists.
Diokno said the central bank’s short term instruments like the term deposit facility (TDF) and the BSP securities “provide a bridge between the BSP’s main policy interest rate or the overnight RRP (reverse repurchase) rate and the rest of the yield curve, which can serve as a guide to bonds or pricing (by the banks of) their loans to clients, thereby, supporting the monetary transmission process.”
“BSP securities are envisioned to complement issuances by the national government rather than compete with them. Once the BSP starts issuing its own negotiable securities, it is expected to add to the pool of risk-free assets in the financial system alongside the securities issued by the national government, which can be traded for liquidity purposes,” he added.
The MOA signing was made for the linkage of the central bank’s web-based electronic platform called Monetary Operations System (MOS) and BTr’s electronic registry system for government securities called National Registry of Scripless Securities (NRoSS).
“The connectivity of the MOS and the NRoSS is the main infrastructure that would allow the issuance to be possible and would make the features of the BSP securities negotiable and attractive to the market,” Diokno said.
During the same briefing, BSP Assistant Governor Winnie Santiago said market reception of the planned central bank debt securities “has been generally positive” since banks consider this as additional benchmark for loan pricing and additional option where banks can part their idle funds.
“We expect strong market demand given the currently large amount of liquidity in the financial system, she said.
Santiago said some market participants have concerns on the similarities between the BSP and the BTr-issued securities, but this issue is now being addressed by monetary authorities and their counterparts from other institutions.
She said some market players have questioned the timing of the issuance given the impact of the pandemic on the economy.
But Santiago said the BSP reassures market participants that its liquidity provision measures will remain in place for as long as necessary.
“The issuance of our own securities is part of the reconfiguration of its monetary operations in order to further improve the monetary transmission mechanism and add to the existing supply of risk-free financial instruments in the banking system,” she added. (PNA)
