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MANILA – The Bangko Sentral ng Pilipinas (BSP) on Thursday said an overnight (ON) rate will be published on its website to serve as a market reference amid the cessation of the global use of the London Interbank Offered Rate (LIBOR).
In a statement on Thursday, the central bank said the overnight rate uses as reference the secondary market rate on the 28-day BSP bill to compute an ON equivalent.
The BSP last month disclosed that market players agreed on the use of the 28-day bill rate as a reference rate.
"This starts a broader initiative to enhance the BSP ON reverse repurchase (RRP) agreement facility. Once the enhancements are fully completed, the new rate from the RRP facility will become the ON reference rate," the BSP said.
The BSP said it either siphons excesses or augments shortfalls in market liquidity via open market operations.
The main tool is the ON RRP facility which is based on the BSP policy rate.
Under the existing framework, the BSP said the RRP facility auctions a pre-announced amount at a fixed rate.
"The ongoing enhancements, such as the change in the auction window from 4 p.m. to 11 a.m., however, are designed to encourage more active liquidity management by the banks," the BSP said.
"The expected result of these improvements is a variable rate from the ON RRP facility that would be more responsive to changing market conditions," it added.
In a comment, Rizal Commercial Banking Corporation (RCBC) chief economist Michael Ricafort said the launch of the overnight rate aims to provide a more credible benchmark for ON funds, either for investments or for borrowings on a daily basis, as determined by the market in an effort to also derive a more credible yield curve for the market.
Ricafort said the PHP BVAL (Philippine Bloomberg Valuation) yield tenors are from one-month to 30-year tenors as determined in the market every trading day, so the ON tenor would complete all the tenors as part of financial market development.
"Especially that the LIBOR is already phased out since July 1, 2023, it is important to have a more credible interest rate benchmark that is not prone to undue manipulation by investors or borrowers similar to what allegedly happened to LIBOR in the past," he added.
With this, Ricafort said everyone in the market would get a transparent ON rate from the perspective of both borrowers and lenders based on daily auctions as determined by market forces, thereby giving both investors and borrowers greater flexibility on the tenors. (PNA)
